Spanish banks: Expectations get more complicated after eurozone’s slump

Before the new economic growth forecasts were announced, experts at Analistas Financieros Internacionales (Afi) prepared an in-depth report focused on the Spanish banking system’s prospects over a period covering 2014 to 2016. Their conclusions show a complicated future with less income from commissions, double digit default ratios, new credit allocations that won’t compensate amortizations,  almost non-existent profitability, and minimum margin growth.

The report says that the default rate will reach 13% at the end of 2014, but the figure will be reduced by €30 billion by the end of 2016. The downward trend of the default ratio will be supported by  households’ deleveraging process.

Regarding  credit, new operations have improved in consumption, SME and housing sectors during 2014. However, it continues to contract for large companies, which drags down lending. Afi believes that credit lending levels will be maintained in 2015 and 2016.

It seems unlikely that  credit can advance without strong measures by the ECB and  governments to boost  economic recovery. So far, it appears  that the  TLTRO might end in  failure.

Be that as it may, Afi experts consider that the stabilization of credit levels and tough reduction costs will help generate results in 2015 and 2016, which will allow  ROE  to reach a close to 7%.