The Spanish banking sector earned 28% less in the first six months of the year, it has profitability problems and has seen almost half of its stock market value wiped off in the last two years. But there are two indicators which inspire optimism in the medium-term: bad loans continue to fall and are now at levels prior to the June 2012 banking sector bailout; and in the last few months there has been a strong rise in consumer credit as well as in lending to non-property companies, which has offset the slight drop in mortgage lending.
The NPL rate now represents 9.4% of total loans to companies and private individuals, far off the 13.6% registered in December 2013. Doubtful loans now stand at almost 121 billion euros, out of a total of nearly 1.3 trillion. Another positive figure is that the banks have provisioned for 59% of these bad loans.
What are the factors behind this positive figure? Undoubtedly the first one is the improving economic situation. Spain’s economy has gone from a deep recession to registering annualised growth rates of over 3%, more than double those of the Eurozone.
Low eurozone interest rates, which have been at 0% for some time now, have made a decisive contribution to deleveraging. But, on the other hand, they have damaged the banks’ profitability.
Experts also mention other aspects which have had an influence on the reduction in the NPL rate, such as the sale of doubtful loans to international funds or the transfer of many non-productive assets to Sareb, Spain’s ‘bad bank’.
Apart from the drop in bad loans, the data related to new lending gets better by the day, particularly in the areas of consumer credit and loans to non-property SMEs. But the big companies are using bank financing less due to the ECB’s corporate debt purchasing programme.
The improved trend in new loans does not yet allow for a return to positive growth in outstanding credit volumes. And in fact analysts don’t see this happening until 2018.