Improvements in Accounting Optimism: Spanish Banking’s Portfolio Quality and Decrease in Loans Under Surveillance

Accounting optimism in Spanish banking. The quality of the entities’ portfolios has not stopped improving, far from the pessimism that spread in the sector after the pandemic and the invasion of Ukraine. no longer just for the delinquencywhich remains close to minimum levels after the slight rise in the last two months, also due to the loans under surveillance.

These credits are those that are still up to date with payment, but that show some sign of weakness, either due to a delay in payment or due to the anticipated analysis carried out by the entity for objective or subjective reasons. This classification (known in the industry as stage 2) is like an ICU from which some loans come out delinquent and others healthy.

According to the latest figures from the sector, the second is happening more and more: credits come under surveillance more due to false alarms than due to real problems. Thus, the volume of loans in stage 2 in Spain has dropped by 3,776 million between January and June. These numbers include the data of the Spanish subsidiary of BBVA, but not that of Santander, which does not break them down.

The drop in credits under surveillance has been even greater since the end of 2021, when the peak was reached, after a year in which the European Central Bank (BCE) called for a thorough review of the portfolios. Since then, the balance of the stage 2 it has fallen by 7,414 million, or 9.2%. The fact that a loan falls into this category has implications at the level of provisions for banks, although to a lesser degree than in the case of being doubtful.

economic pull

The Governor of the Bank of Spain, Pablo Hernandez de Cosexplained it recently: “Credit quality has continued to improve. In particular, the doubtful ratio has continued to fall, reaching 3.4% in March [subió al 3,59% en mayo]the minimum level observed since 2008 and 1.4 percentage points below that observed in 2019. In the same period, credit under special surveillance decreased, reaching 7.2% in March, although it is still above the level registered before the pandemic (5.9%)”.

Bankers consulted by this means explain that a large part of the drop in stage 2 It has occurred in sectors in which defaults were discounted in 2020, such as the hotelier and restoration, which are performing much better than expected. In fact, the turismo It is at record levels.

And also in the sectors that were anticipated to be more problematic due to the ukrainian war, especially those more dependent on energy prices. These sources explain that more recently, more focus has been placed on agricultural companies, due to the effects of the drought that has occurred this year. By entities, the ones that have reduced the weight of intensive care loans the most are BBVA Spainwith 21% less since 2021; bankwith 17% less, and CaixaBankwith 10% less (see graph).

while, the of the The only companies that have not lowered the balance of loans under surveillance this year are Santanderwhich is in countries like the US and Brazil, where there has been pressure on asset quality, and Kutxabankwhich in its presentation to the market indicates that “there are no indications of deterioration in any segment of activity” and that the provisions increased due to its “prudent management in the face of geopolitical risk and macroeconomic uncertainties”.

Accounting optimism in Spanish banking. The quality of the entities’ portfolios has not stopped improving, far from the pessimism that spread in the sector after the pandemic and the invasion of Ukraine. no longer just for the delinquencywhich remains close to minimum levels after the slight rise in the last two months, also due to the loans under surveillance.