Bank of Spain Warns of Slight Increase in Loans Under Special Surveillance in Q1

The Bank of Spain has warned of a “slight increase” in credits under special surveillancealso known as ‘stage 2’, in the first quarter, since the ratio of these loans stood at 7.2% at the end of March compared to 7.1% at the end of 2022.

This was reported by the General Director of Financial Stability, Regulation and Resolution, Ángel Estrada, who participated this week in the ‘NPL Days Spain’ held in Madrid. He has also indicated, in this regard, that loans classified as ‘stage 2’ and whose purpose is other than home purchase have shown an “upward trend” during the period.

However, as to bad loans, classified as ‘stage 3’, of banks -that is, taking into account only deposit institutions and excluding financial credit establishments- fell 3.37% to 38,916 million euros, compared to the 40,277 million that were in December. In this way, the doubtful ratio was 3.4% at the end of March, compared to 3.5% in December and 4.2% at the end of 2021, according to the publication Europa Press.

In the same presentation, the Bank of Spain has indicated that there has been a“extraordinary” mortization in the portfolio that the banks have of credits guaranteed by the ICO, which means accounting for 75,300 million euros

Nevertheless, the credit quality of ICO loans worsened in relative terms, reaching a ratio of 8.2% in March, compared to the previous year, although the supervisor explains that this increase is due to the significant reduction in the ‘stock’ of these loans. In addition, he points out that the rate of credits under special surveillance of this portfolio has decreased.

credit drop

On the other hand, the supervisor has indicated that credit had fallen by 1.3% in the interannual rate in March 2023, 0.6 percentage points more than in the fourth quarter of 2022. This decrease was somewhat more pronounced for households than for companiesand this despite the notable reduction in credit activity to SMEs.

However, new credit continued to grow, with an increase of 14.8% in the first quarter, although its progress moderated in recent quarters. In addition, the Bank of Spain points out that new operations signed with households fell, a segment that a year ago was “the most buoyant”.

It also accelerated the rate of repayment of loans in almost all segmentssomething that the banks themselves already transferred in the presentation of their accounts for the first quarter.

The supervisor has explained that, in the case of mortgages, this higher rate of amortizations mainly affected variable rate loans, although it was also extended to fixed-rate mortgages. He has also highlighted that this situation is more pronounced among households with higher incomes.

Regarding the repricing of credit portfolios, he estimates that close to 35% of the variable mortgages that were “alive” in December will see their interest rates rise in at least three percentage points during the yearfollowing the upward trend of the Euribor.