Bank bad debts resist the cycle of rate hikes at their lowest levels since 2008
The bank non-performing loan rate closed in 2024 at the lowest level in 16 years, with which the entities have managed to withstand the cycle of interest rate increases that began in July 2022 without suffering in one of the most sensitive variables in the granting of loans. The banks themselves attribute this trend to the good moment of employment, to which are added the sales of portfolios of problematic loans with which they have kept the balance sheet in check.
Last year ended with a bank default rate of 3.32%, down from 3.52% in December 2023, according to data published this Monday by the Bank of Spain. Contrary to what analysts and the institution itself had predicted two and a half years ago, consumers have overcome the rate hikes that began in 2022 without excessive problems.
If in 2021 the default rate was 4.29%, 2022 closed at a lower rate, at 3.5%. Last year it rose to 3.62% in May and has been falling progressively since then. These percentages are very far from the levels of the worst moments of the financial crisis, of 13.6%.
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The current amount of non-performing loans is 39.358 billion euros, compared to more than 42 billion at the beginning of the year. This is also the best figure since May 2008 and is far from the almost 200 billion reached during the financial crisis. The credit portfolio of Spanish banks now stands at 1.18 trillion euros.
Antonio Castelo, market analyst at IBroker, highlights above all the “controlled” nature of the current figures, the result of the discipline of the banks and also the prudence of consumers, even now that rates are falling and mortgage lending is increasing. “Banks are stricter when it comes to granting credit and consumers are no longer getting into the same level of debt as before,” he concludes.
However, the economic scenario in Europe is “complex” and uncertainty is increasing due to greater geopolitical risks, Neovantas warns in its latest report on banking. Banks, it notes, have reduced their provision for liabilities and impairment losses by 5.3% in 2024, they warn.
At the same time, banks must work on the countercyclical capital buffer required by the Bank of Spain to respond to future economic crises. This reserve must be established before October 1 of this year and be equivalent to 0.5% of risk assets. In total, they must allocate 7.6 billion between this year and 2026.
From 2.7% of Caixabank to 3.7% of BBVACaixaBank, the bank with the most business in Spain, closed last year with a non-performing loan rate of 2.7% in the country, 4% less than a year earlier. It is the same as Santander, which has reduced it by 12%. BBVA, on the other hand, has a non-performing loan rate of 3.7% in Spain, 9% less, while in the case of Sabadell it is 3.3%, 22% less.
The Bank of Spain's latest report on the financial situation of households and businesses indicates that their conditions "have improved during the second half of 2024, reflecting a lower degree of restriction in the ECB's monetary policy." There are also expectations that interest rates will continue to fall in the coming months.
Added to this are the sales of portfolios of problematic loans, which remove from the balance sheet the loans with the highest risk of default. Axis Corporate estimates in its latest report on the subject that entities have disposed of portfolios worth 8.2 billion euros of low-quality loans or non-performing loans (NPL).
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