The widespread rise in prices, the increase in the cost of living, the rise in interest rates, and the macroeconomic instability in which Europe has been plunged since the start of the war in Ukraine make for a scenario that the banking sector is approaching cautiously. The banking sector is preparing for a possible growth in defaulting loans during October with the start of the fourth quarter of the year, which is expected to be economically demanding on both Spanish businesses and families.
After the first half of 2022 in which the sector has restrained and lowered the default rate, banks are already admitting an impact in the upcoming months. Banks had been dodging the effects of the pandemic thanks to the good reaction of the economy, government aids, and the boom in domestic consumption after the alert state, in addition to the moratoriums applied to loans guaranteed by the Spanish Official Credit Institute (Instituto de Crédito Oficial, ICO). However, the industry already assumed that the deterioration of the economy, due to inflation and the rise in interest rates to try to restrain it, would have a mid-term effect on the default rate.
In this context, according to sources consulted by the newspaper Cinco Dias, part of the banking industry, beyond the upturn in defaults -which is expected to be ‘manageable’,- is very concerned about the rate at which generated savings during the coronavirus pandemic will be spent. During lockdown and restricted mobility months, corporate and household deposits increased to over 1.3 trillion (200 billion more than before the health crisis), according to the latest data from the Bank of Spain.
But there is good news. The default ratio is currently at an all-time decade low and has continued to fall monthly this year, from 4.32% at the start of the year to 3.85% in July. Although institutions do not dare quantify a figure, experts consider Spanish banks are prepared to face the rise in defaulting loans. Solvency levels are the highest in recent years and, in addition, they have reserves from provisions set aside during the pandemic that have not yet been released as precaution.