Credit to companies has suffered a halt in the last three quarters. With the pandemic and lockdown, companies went into debt en masse to hold out. Between February and June of last year, stock financing increased by about 55,000 million, a movement that was also strongly backed by ICO guarantees, which guaranteed the bank more than 70% of the loan. However, since then the amount has hardly risen. It has gone from a behavior typical of a temporary situation to a more common pattern in crises: credit does not rise due to uncertainty and the drop in demand. Its evolution in the coming months, now that a vaccination horizon is in sight, will be decisive in investment and recovery.
The granting of credit has experienced a halt since the middle of last year. The total balance has hardly changed since June. And requests for ICO guarantees have suffered a significant slowdown since August. This is also seen in the latest survey on loans published last week by the Bank of Spain. During the first quarter of 2021, both in Spain and in the monetary union, a slight contraction in the credit supply would have occurred in almost all segments, which would be linked to an increase in the risks perceived by the entities. The study maintains that, in addition, loan requests have declined in a generalized way
Or what is the same: not only banks would be restricting financing somewhat due to the persistence of uncertainty and the possible increase in arrears in the coming months; companies would also be demanding less credit
One of the reasons for this halt lies in the sharp increase in debt. After a decade in which companies had managed to reduce their debt by about 50 GDP points, the pandemic has raised it again. With the bubble, the ratio of corporate debt to GDP shot up to 120% in 2010. Year after year it fell to 73% registered in 2019. And last year it rose to 85% of GDP, an increase of more than 10 points in a single exercise that is largely explained by the drop in the denominator. That is, something should be corrected as the economy recovers size.
In addition, this increase has been concentrated mainly in the activities hardest hit by the pandemic, with a small size and a lower capacity to generate resources. The bank debt of the hospitality industry has skyrocketed from 26,000 million to 35,000. With the only help of the ERTEs to face the restrictions, the increase in their liabilities has been 31% compared to the 6% that rose in the group of companies and compared to the stabilization of previous years. This implies that the vulnerable firms are those that have accumulated debt and have probably reached a point where they cannot incur any more.
What’s more, banks have been tightening the concession to these sectors for at least six months, according to data from the Bank of Spain. While in March 2020 the companies presented a healthy balance sheet and the expectation was to face something transitory, they currently have very bad accounts from last year and great uncertainty about their repayment capacity. In the aforementioned loan survey, the Bank of Spain highlights that the restriction is mainly affecting SMEs.
The situation looks very uneven. Another reason that credit does not increase is that successful companies have accumulated abundant liquidity. Company deposits have skyrocketed by about $ 50 billion. A fact that also reflects this polarization is that the companies that obtain the credit obtain better financing conditions, in part due to the injections of the ECB, in part because the banks concentrate the loans in companies with solid fundamentals
According to the loan survey, the entities have reported that in the coming months they plan to restrict credit despite the fact that activity should be picking up as vaccination progresses and investment prospects improve. In fact, the banks themselves anticipate that demand will increase. This divergence between supply and demand for credit could represent an obstacle to recovery and the Bank of Spain is closely monitoring this evolution
Streamline aid
For the moment, business investment has not gone as badly as the fall in GDP due to purchases of equipment and programs that were made in a hurry to be able to telecommute or sell online. But neither is observing a solid rebound to prepare for the recovery that is guessed once there is a high percentage of the vaccinated population. The arrival of European funds could be delaying the improvement of private investment, waiting to see how companies can take advantage of these resources. But above all it seems that the uncertainty about the vaccination rate and the new strains could be postponing the return of the investment.
The evolution of investment and credit will play a fundamental role in the strength of the recovery that is expected. And it will largely depend on whether the banking channel works normally. So far no sign of a credit crunch has been seen
However, the slowdown in ICO loans reveals the limitations of the government’s measures. ICOs and ERTEs have been used to successfully sustain income and liquidity. But as experts emphasize, they are not a debt solution that many companies had to take on at times simply to defray fixed costs. Hence the need for direct aid, restructuring of ICOs and a bankruptcy reform that streamlines removals
Although the Government has begun to articulate these initiatives, the services have warned that they may arrive late. They demanded last week the need to speed up aid, something that in their opinion does not seem easy as long as the communities manage them. Many companies that were viable under normal conditions may end up not being viable due to debt
The sum of public and private debts, at bubble levels
The sum of the debt of companies, families and the State reached 267% of GDP at the end of last year. These are very high levels that are close to the highest levels of the last bubble, when 270% of GDP was slightly exceeded back in 2012 and 2013. A 10.8% drop in the economy reduces the denominator and explains part of the increase. In 2019 it was at 225% of GDP. The other reason is the sharp rise in public and corporate debt. That of the Administrations gained 156,000 million last year. And that of companies, at 48,000 million. Even so, the economy should rebound this year and next, reducing the ratio of GDP. And low rates from the ECB will ease the debt burden. However, these figures highlight the challenge facing the Spanish economy, which is very vulnerable to these liabilities, especially since a significant proportion is in foreign hands that have to refinance them. And at some point the ECB will have to stop its debt purchases.
Source: The Country
– .
