The high retail interest rates in Spain, over 8% compared to at least 4% in France and other Eurozone countries, without doubt indicates usurious behavior, of the banks’ abuse of power at the expense of the customer, who on the other hand ought to inform and educate himself and refuse to pay these rates. I would say that, in fact, there is an oligopolistic factor in Spanish banking which stamps its slant on the interest rates it charges. The proof is the rigidity one sees in Spanish retail interest rates, a rigidity to lower when other countries relaxed financial conditions from 2012 and they lowered much more abruptly, increasing then the margin between Spain and the rest.
That said, a visit to the Bank of Spain’s Report on Financial Stability reveals another factor, the growing risks the banks perceive, which is making the banks more prudent.
Something else to take into account is that consumer credit in Spain has had the highest interest rates from one to five years. For one year maturity, the tables are inverted.
In fact, according to ECB data, retail credit with a duration of one to five years has an average interest rate in Spain of 8.3%, 70% about the 4.8%% average of the Eurozone. The tables are turned in retail credit to be returned in under a year. Since the beginning of 2015 it is cheaper to request a short term loan, with an average interest rate of 3.6% in March 2018, compared to the 4.7% average in the Eurozone.
Why is there this difference in behavior between Spanish and European banks depending on maturity? It is clear that the risk of non-payment at one year is less, but there is something which leaves a component without explanation …
Here we have to introduce the commentary of Enrique Garcia Sáez in his excellent article:
”This is well understood when we buy a new car and approach the dealer of the maker. Anyone will have spotted that often they are willing to reduce the price of the vehicule if you promise to accept their financing plan, which obviously includes high interest rates. Many people decide that, despite the high interest rates, the plan is worth it …
”Why this behavior by the dealer? It is likely that the manufacturer also benefits by dropping the price in exchange for higher interest rates. And the price of the car is subject to VAT, while the financial intermediation (interest rates) are not. For a company which buys a vehicule there is no great difference, as they can discount the VAT later. But in the case of an individual the tax paid is reduced by increasing the interest rates and cutting the price of the car.
In other words, the seller can play better with the VAT, which it can discount later, and leave the interest rate unchanged, which adds rigidity to it, although doesn’t stop being an abuse of power by the manufacturer.
Another aspect to comment on. In the national ranking, Spain and Italy are the countries that charge the highest retail rates, and we know that their banks are those suffering the worst stability problems. The information is opaque, but every now and then you read in the press that Italian banks hold assets that may not be repaid, although their situation is not clear in their accounts. The same happens with us too. On this aspec I would like to quote some words of Aristóbulo de Juan which are not limited to Spanish banks, but apply also to European banks and Europe’s latest contributions to the problem:
“The increased regulation of capital unleashed by the financial crisis seem designed to deal with the problems after they happen rather than to prevent them happening. Basically because nothing has been done to increase vigilance of the loss of value of assets, the real cause of insolvency and banking crises.
”It’s worse. The regulatory requirements validate assets of little quality and conceptually very questionable, whether because they expensive, enforceable, or lack economic substance or liquidity. Good examples include deferred fiscal assets (which continue to worry Frankfurt), and certain hybrid securities, like the so-called cocos, very burdensome and of uncertain future.”
In short, all European banks are under pressure . The measures taken towards unity are necessarily slow. In the interest rate differentials there are not only monopolistic elements, but also elements of security and stability.