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From confidence to uncertainty: turnaround in consumer and housing credit

Financial entities anticipate a certain tightening of the criteria for granting loans and a drop in demand, both for consumption and for home purchases, which would interrupt the upward trend that has been recorded in recent months thanks to the confidence for recovery from the pandemic. A scenario that will erase the uncertainty generated by the economic consequences of the war in Ukraine, according to forecasts for the coming months compiled by the Bank of Spain.

The Agency’s Survey on Bank Loans reflects that, with a view to the second quarter of the year, the Spanish entities surveyed anticipate a further tightening of the award criteria and a slight drop in demandwhich would be largely influenced by an increase in uncertainty associated with the impact that the war in Ukraine could have on economic activity.

As for the credit to households for house purchaseforesee a certain tightening of the criteria for granting loans and a drop in demand, which would interrupt the upward trend that had been registered in this segment in the last four quarters.

while with the credit to households for consumption and other purposes lending criteria are expected to tighten slightly and a slight drop in demand is anticipated.

Regarding what happened in the first quarter of 2022, the criteria for granting loans to non-financial corporations tightened moderately, due to a increased perceived risks and to a lower tolerance to them on the part of the financial entities. The Bank of Spain explains that “this would be linked to a context of greater uncertainty and the negative impact that both the supply problems (the so-called bottlenecks) and the higher costs of energy and other raw materials would have exerted on the activity of the companies”.

In addition, the award criteria were tightened more intense in SMEs than in larger companies.

The demand from companies would have remained stable in the first quarter of 2022. This would have been the result of opposite effects, since, while the increase in mergers and business restructuring operations and the greater needs to finance investments in fixed capital would have favored a growth in applications, the use of internal financing would have led to a contraction in credit demand.

Regarding the criteria for approving loans to households for house purchase, between January and March of this year they remained stable in Spain. On the other hand, the general conditions applied to these loans would have been somewhat relaxed, mainly as a consequence of the strong competition existing in this segment, and this would have resulted in a reduction in margins applied to ordinary loans.

According to the perception of financial entities, the demand for funds for house purchase would have grown again between January and March, fundamentally as a result of the increased consumer confidence and, to a lesser extent, due to the good prospects for the housing market and the low level of interest rates.

“It seems, therefore, that the growing uncertainty that would have become evident in March, with the outbreak of the war in Ukraine, would not have yet significantly affected the requests for funds from this segment, which refer to the whole of the first trimester,” says the agency.

Regarding the criteria for granting loans to households for consumption and other purposes, they did not change during the first quarter of 2022. The demand for credit in this segment would have increased again, driven by a increased spending on consumer durables and by greater consumer confidence.


Likewise, due to the impact of the war in Ukraine and the higher associated inflation, the data point to a weakening recovery of eurozone consumption in April. “March had been strong, buoyed by economies reopening after the Omicron wave, and the knock-on effect should support strong growth in the second quarter. But the ongoing war and cost of living increases present downside risks,” notes Oxford Economics.

As detailed, the consumption of services, the main driver of the recovery, rebounded from February, when contagion rates began to fall and restrictions were lifted. “But the most recent data shows that the uptrend is losing steam and that service consumption could be slower to fully recover from pandemic losses. Additionally, surges in infections in some countries will further limit spending on services,” he adds.

“We think the drop in consumer confidence in March may be an overreaction and we expect some correction. But even if confidence improves in April, confidence is likely to remain subdued and households limit spending“, estimate the analysts, who suggest that the timing of the recovery in consumption is still particularly uncertain.

They forecast that the second quarter will continue to see solid growth in consumption, “but with a persistently high inflation that reduces real income, consumers may be reluctant to splurge.” They believe that this would affect expectations of the European Central Bank (ECB) positive momentum from the reopening of the eurozone in 2022, implying that monetary tightening may not happen as quickly as markets expect.

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