In the early years of the crisis, Spain’s capital markets and banks suffered severe financing restrictions, but since then access to funding has been slowly re-established for big companies, as well as for SMEs and families. And analysts believe this is now functioning normally. But along the way there have been substantial changes in both companies and households’ spending and investment decisions. This could limit the growth potential of the demand for financing.
So while it’s hoped that there will be a comfortable supply of credit, demand conditions will determine whether credit growth over the next few years will be modest or even lower than nominal GDP growth.
In the first place, the fact that Spain has a current account surplus compared to a deficit previously implies that there are now excess savings (2% of GDP), which the financial sector will have to redirect abroad.
If we exclude the public sector, which for the most part is financed in the capital markets, the private sector, financed mainly by the banks, has an even bigger amount of excess savings (6% of GDP).
After the adjustment in property investment, households have reverted to their historical pattern of having excess savings. And although it’s expected that investment in housing will increase, it’s believed that savings will remain higher and that households will continue to cut their debt.
In the case of companies, the internal resources they are generating outpace their investments. The origin of this lies in the increase in corporate earnings, due to a process of cost adjustment and improved competitiveness which, at the same time, have been the basis for the economic recovery. So it looks as if there is a preference for corporate investment to be financed from own resources.
These changes will undoubtedly bring with them a pretty moderate rise in the demand for credit over the next few years.
This difference between the supply and demand for credit is clearly shown in the six-monthly survey the ECB carries out amongst European companies to analyse the access to credit. In the latest one published, the improvement in the supply of credit in Spain is higher than that recorded by the broadest possible external financing needs in the whole of the eurozone.
This increased supply has been helped by the repairing of balance sheets, the ECB’s expansive monetary policy and the banking sector restructuring. At the moment, the banks are looking to generate new business to improve their profitability. This has fuelled strong competition for solvent demand for credit, which in turn has led to a sharp fall in interest rates on new loans.
The private sector’s lower financing needs are not incompatible with a recovery in bank lending, although they do limit it. New loan transactions have been rising in the retail sector for two years and for one year in the case of the big companies. Their need for bank financing has been less because they earn more and have easier access to capital markets.
The credit balance is gradually recovering and is already registering positive growth in sectors like consumption, agriculture and livestock and commerce. It is hoped that this recovery will carry on over the coming quarters, although it will be at a slower pace than that of nominal GDP growth. This will allow the deleveraging process to continue.
