Entities, however, consider that they have already made most of the effort to allocate provisions.
The Bank of Spain continues to insist on the need for banks to continue provisioning, but has gone a step further by asking the sector to carry out in 2021 and 2022 a similar effort to last year. For the supervisor, there is still “uncertainty” on many fronts, so “prudence” must be the norm.
A request that collides with the attitude of the entities, which are generally sending the message that the greatest provisioning effort has already been made.
“This year and next year they should make a similar effort”, explained the General Director of Financial Stability, Regulation and Resolution of the Bank of Spain, Angel Estrada, which is aware, however, that “some banks are better off and well above the average and others are below.” The message, therefore, is sent to the sector as a whole, but especially to those entities that have made less effort.
The Bank of Spain insists on this issue since it considers that “there is a lot of uncertainty about the macroeconomic evolution and about the measures that are being taken”. The supervisor acknowledges that the rescue plan for SMEs recently launched could lower the necessary provisions, although, since it is not yet known which specific companies will benefit, “uncertainty” persists. “The message is that they be prudent and donate in advance”Estrada has added.
The general director has also highlighted that banks can dispose of their capital buffers to absorb the endowments and in that sense it has transferred that the banks should not have “reluctance” in using them if necessary.
These statements are made within the framework of the presentation of the last Financial Stability Report from the Bank of Spain, which details that the outstanding credit balance of entities grew in 2020, with special dynamism in the first half, due to the large volume of loans granted with State guarantees.
The year-on-year growth rate stood at 3.5%, which represents the first advance of bank credit in Spain since 2008 and “reflects the capacity that the banking sector has had to cover the liquidity demands of households and companies, as well as the effect of the economic policy measures adopted to alleviate the negative effects of the crisis, in particular the credit support programs ”.
The total new credit granted during the past year to households and non-financial corporations and individual entrepreneurs exceeded by 4.1% that granted in 2019, although the behavior was uneven in non-financial corporations and individual entrepreneurs, where it increased by 6.6%, and in households, where a decrease of 5.6% was observed.
The volume of credit arranged in related operations with the lines of ICO endorsements it represented 18% of the total new credit granted by entities last year and 34% of the credit for new operations granted to companies.
The refinanced and restructured loans, for their part, continued to decline in 2020, but moderated since the start of the pandemic, something that “could indicate a greater use of them by entities to mitigate payment difficulties by some borrowers,” says the Bank. from Spain.
From the supervisor they explain that at the end of 2020 the balance of credits in special surveillance, that is, those that are likely to end up being unpaid, amounted to 82,000 million in Spain and would account for 7.5% of the total portfolio of loans to companies and 5.2% in households. These credits in special surveillance shot up 20% last year.
On the other hand, the Bank of Spain has urged the Government to present a credible fiscal consolidation plan, although in the short term it is still necessary to maintain the stimuli.
“The redirection of public finances in Spain will require a considerable effort. The authorities should design without further delay a credible and sufficient program for the consolidation of public finances over an extended period of time, which begins to be implemented after the health and economic crisis is over”, he warns in his latest Financial Stability Report.
Despite the government’s reluctance to present a rebalancing plan, according to the institution, it considers that this roadmap for fiscal consolidation would favor long-term growth.
In addition, it also affects the the need to quickly execute the distribution of direct aid to companies affected by Covid-19 to help viable companies with solvency problems. It also affirms that this distribution -which will be articulated by the autonomous communities- must be done in a “homogeneous” way to help companies.
In this sense, the Bank of Spain affirms that “flexibility in the volume and use of committed funds will be necessary to adapt to the evolution of the pandemic”.
The Financial Stability Report also analyzes the situation of families and warns that the gap between vulnerable households and the rest is widening due to the pandemic.
Despite the fact that deposits indicate that household wealth is growing due to the increase in savings in aggregate terms, the Bank of Spain also detects that the degree of financial pressure on families is increasing, especially in the case of families more vulnerable.
All this, its economists recall, despite the fact that “public support measures have so far contributed to significantly mitigate these effects” thanks to measures such as ERTEs, moratoriums or the Minimum Vital Income (IMV).
The household savings rate is at record highs. However, the institution warns, “it is very likely that the increase in the most liquid wealth will be concentrated in the least vulnerable households. The negative impact on household labor income has varied markedly depending on the branch of activity of their employment”.