Average interest on consumer loans drops 7% for the first time

The pandemic historically knocks down consumer credit prices. The average interest at which Spanish banks commercialize these loans falls below 7% for the first time in decades, according to the latest data published by the Bank of Spain. Specifically, In November 2020, the average interest at which these credits were sold stood at 6.98%, the lowest figure since there is data. Neither in the previous crises, the 2008 and 2012 crises, did prices reach this level. In fact, the lowest level reached since then occurred in June 2010, when the average marketing interest stood at 7.14%. During the financial crisis of 2012, prices did not drop by 9%.

The drop in consumption due to mobility restrictions, on the one hand, and citizens’ uncertainty about the future of their purchasing power, on the other, has reduced demand, and therefore, the granting of consumer loans, at one point in which the bank was approaching month by month the financing given in these loans to that granted in mortgages.

As an example, we only have to refer to November 2019. Then, the entities granted that month 3,807 million euros in mortgages. The financing given for consumer loans in November of that year was 3,708 million, only 100 million below, always taking into account data from the Bank of Spain.

However, the pandemic has undermined the granting of these loans, erasing a large bite of the banking business. Between January and November (last month for which there are published figures) of 2020, the entities granted a total of 24,119 million in consumer loans, the volume is more than a quarter lower than that granted in the same period of 2019. Specifically, 27.35% less, compared to the 33,195 million that were granted between January and November 2019.

Impact on business

In addition, to the lower volume of business, there is also the impact of lower income from interest rates, since these personal loans are one of the most profitable activities in the sector, precisely because of the high rates at which they are marketed, compared to the low yields left by mortgages with the Euribor negative since 2016 and the rate of fall in prices of fixed-rate mortgages, in many banks marketed below 2% APR, interest rates of which the European Central Bank (ECB ) has already warned on several occasions that they are too low to make banks obtain future profitability through fixed mortgages.

The second wave of infections, with its main peak last autumn, has weighed down the consumption decisions of Spanish households, given the different restrictions on mobility carried out by the relevant Autonomous Communities, which in certain cases, such as in Catalonia, led to the total closure of stores and shopping centers or, as in Andalusia, to bring the closing time of shops to 6 pm.

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With the hope placed on the Christmas campaign, the first reports that take the pulse of consumption, reflect bad data. According to the study conducted by the TrueBroker Index (iTB), published this Tuesday, Christmas sales in Madrid did not exceed the most conservative expectations and they stood in December at a similar level to those registered in November, with a drop of 52.2%, and 54% compared to the sales registered in those months in 2019. According to data from the CaixaBank analysis department (CaixaBank Research), which measures consumption through the use of customer cards and bank POS in stores, Spending at the national level in the last week of December (from December 28 to January 3) was 19% lower than in the same period a year earlier.

Faced with this scenario, entities are lowering consumer credit prices in order to boost business, the same strategy they are following with mortgages, after granting 3.3% financing between the months of January and October 2020 , compared to the same period of the previous year. In fact, in the case of pre-granted personal loans (those that entities offer directly to their own clients since by having their data, they already know their risk) they are being offered with average interest rates of between 4% and 5%.