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Non-performing loans in Spain in 2022

Non-performing loans in Spain are becoming a topic to talk about, as they have not stopped growing since the first half of the year, with Spain being the third country with the highest delinquency rate. Although there are sectors with higher delinquency than others, the rate has not stopped rising and is expected to continue the same trend. Find out here how is the delinquency rate in Spain this 2022 and what are the forecasts, let’s get to it!

Non-performing loans rate forecast for Spain in 2022

The consequences of the health crisis caused by COVID-19 resulted in the insolvency of multiple businesses unable to repay the ICO loans offered and granted during the pandemic, as well as numerous unpaid invoices.

A study carried out by the consulting firm E&Y highlights the increases in delinquency in Spain, reaching 4.6% this year and estimated at 4.5% by 2023. Although this is a low number in relation to that of the current year, it is still a higher value than the 3.4% forecast for the euro zone in 2022 and 3.9% for 2023.

So begins the EY European Bank Lending Forecast Spring report on bank lending and forecasting in the Eurozone, which highlights the level of non-performing loans in Spain, detailing the increase in consumer credit, catering and accommodation, and loans subject to overdue moratoriums and public guarantees.

The rise in defaults is causing a whole context of slowing loan growth. It is also expected to slow to 2.9% in 2023 in the Eurozone and 1.4% in Spain proper, with demand for loans in the wake of the pandemic already contracting due to rising inflation and the financial impact caused by the invasion in Ukraine.

Despite all of the above, E&Y expects total bank loan growth to recover to an average of 3.4% in the euro area within three years, before reaching 4% in 2025.

As for the forecast for Spain, mortgage lending is expected to continue to grow this year and next. A rise of 0.5% and 1.4% is estimated, which will be “relatively mild”, of course, in line with the fact that banks will continue to act with caution as they have been doing.

However, with respect to consumer credit, it is expected that in Spain it will grow again to 1.5% in 2022 and next year it will decrease by 0.7%. A reduction in purchasing power could be offset by an increase in credit card loans and personal loans that can be made through the bank.

Likewise, it is also thought likely that there will be a reduction in loans to Spanish companies compared to those during the pandemic. The new loans would be sponsored by the public systems of the Official Credit Institute (ICO), a line of guarantees of up to 100,000 million euros approved by the Ministry of Economic Affairs and Digital Transformation that would guarantee financing for the self-employed, SMEs and companies.

However, because companies are still repaying pandemic-era debts, corporate debt is also expected to slow to 2.3% in 2022 and 1.5% in 2023. The report also highlights that banks in Europe’s major markets, including Spain, maintain a strong capital position and continue to support their customers, even in the midst of uncertainty.

 

You may also be interested in: Consequences of the Ukrainian war in Spain

 

Which are the sectors with the highest delinquency rates?

There are industrial sectors that were much more affected than others by the non-payments after the standstill that had to be taken during the pandemic. They are:

  • Feeding

  • Automotive

  • Transportation

  • Agriculture

  • Electronics

  • Construction and materials

  • Printing and paper

  • Services and

  • Textile trade

Among those most affected are the self-employed, with the highest percentage of insolvent and unpaid invoices. In addition, it has been estimated that 5% of Spanish companies are at risk of closing their doors due to non-payments and that 10% will have to resort to extra financing to minimize the negative effects of uncollected invoices.

 

You may also be interested in: Level of digitization of companies in Spain 2022

 

ICO’s impact on the nonperforming loan ratio

According to the report, it explains that delinquency ratios in Spain were reduced during the pandemic thanks to the protective effect of ICO guarantees, bringing them down to 4.3% in 2021.

In addition, the risk of increased loan losses can be mitigated by the healthy financial position of companies and households which, in 2021, was the equivalent of 107% of GDP, or approximately €1.3 trillion.

However, the end of the grace period, as well as the retraction of consumption, has led to growing fears that defaults will impact the delinquency ratios of banks, which have been acting with discretion.

In addition, the consulting firm states that the improved outlook in the face of uncertainty, recovery in demand, inflationary pressure and the sectors affected by the pandemic, should bring improvements that will be reflected in business investment in the current year.

However, it also adds that some companies are still in the process of paying off the debt they acquired during the pandemic, so corporate debt growth may slow to 2.3% in 2022 and 1.5% in 2023, as we mentioned above.

Now, on the contrary, it is noted that debt positions increased with respect to the sectors that were more exposed to the effects of the pandemic, such as hotels, entertainment, transportation. The latter, compared to the other sectors, have higher vulnerabilities.

In fact, the Plataforma Multisectorial contra la Morosidad (PMcM) warned of the risks that may be faced in terms of business arrears and the enormous danger of the empowerment of payment deadlines that will negatively affect SMEs and self-employed entrepreneurs.

In this sense, inflation, the changes in the conditions of the new line of ICO guarantees and the end of the bankruptcy moratorium will be merging to finally trigger the problems of defaults and debts that could lead to the possible closure of more than 60,000 Spanish companies. This is well above the volume of bankruptcies registered during the financial crisis of 2008.

Are there alternatives beyond ICO guarantees?

Both the E&Y report and the actual outlook of Spanish banks may indicate a high increase in non-performing loans. An eventuality which could put a significant number of companies in Spain at risk.

Fortunately, there are alternatives that can help to tackle and minimize these problems in the market within the extra-bank circuit. In this sense, we would be talking about one of the undisputed leaders: Gedesco, which, precisely, has options that allow mitigating the effects of delinquency.

Another alternative to mention is Mercado de Facturas, which is designed to advance the collection of invoices. And we can also mention Recobrarte, a company dedicated and specialized in unpaid invoices.

It is worth mentioning that Mercado de Facturas protects against non-payments, since it assumes the management in case of incidents or non-payments, offering liquidity in less than 24 hours, allowing the money to be available in the account in a short time and without the need to wait for a due date.

Indeed, late payment is a major problem for companies. However, options such as Mercado de Facturas, for example, can help your company cope with crises.

 

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The issue of non-performing loans in Spain is still a panorama of uncertainty in the face of which we are trying to take as many preventive measures as possible to put companies at the lowest possible risk and protect them from the risk of closure.

If you want to know more about delinquency in Spain and about the country’s current affairs in general, subscribe to our blog at TAS Consultancy where we constantly upload content on these topics. Do you need advice? Is your company going through a difficult time? Do you want to take a big step, but don’t know where to start? Schedule a free consultation on our website and our professionals will be happy to assist you.

 

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