Spanish Banks’ Bad Loans Fall as Credit Rises

Spanish Banks' Bad Loans Fall as Credit Rises

Spanish Banks’ Bad Loans Fall as Credit Rises

Over the last few months, Spanish banks have been showing that the economic recovery is slowly but surely filtering through to their balance sheets.

In December, the banks’ bad debt as a percentage of total lending inched down to 12.5 percent from 12.7 percent a month earlier, according to Bank of Spain data.

The non-performing loan ratio had also fallen for four straight months prior to December.

So what’s behind the change in trend? There are two main factors, both linked to the improving economic situation. Firstly, borrowers – both households and businesses – are prioritising paying off existing debts, so banks are becoming healthier. Secondly, at the same time, credit is rising as attractive property prices fuel an up-tick in mortgage lending and companies start to invest again.



A property market collapse in 2008 left Spain’s banks awash with soured loans issued to property developers during a decade-long boom. Their capital base was gradually eroded by hefty provisioning for these bad debts, forcing the lenders to turn off the credit tap.

Even Santander, the country’s biggest bank, was not spared from the collapse and had to write off billions in bad home loans, with some 19 billion euros wiped out from its books in 2012 alone.

Bad loans at Spanish banks reached a record high of 13.6 percent in December, 2013. Most of the country’s savings banks – which bore the brunt of the real estate crash – were merged or nationalised, while bad bank Sareb also took on much of their toxic debt.

But despite these government-driven measures, Spain finally had to seek a 41 billion euro EU bailout to clean up and recapitalise its banking sector. Last October, Spanish banks sailed through the European Central Bank’s stress tests, and lending is expected to rebound in 2015 and 2016. For example, Banca March has seen its profits soar during the third quarter of 2014, receiving the highest solvency rating in the Spanish financial system last September, thanks to the soundness of its unique business model.



BBVA chairman Francisco Gonzalez recently told journalists: “Spain is no longer a problem – it has become an opportunity.”

New loan growth in Spain was up in the fourth quarter compared with the third at the country’s second-biggest bank by market value. BBVA’s bad loans as a percentage of total lending fell to 5.8 percent from 6.8 percent year-on-year in the fourth quarter.  At Santander, they dropped to 5.19 percent from 5.61 percent.  Last month, the bank said it will focus on using its capital cushion to increase lending in its existing markets like Spain.

The government has implemented a series of measures, including cuts in corporate tax rates, to encourage both local and overseas companies to invest in Spain – but easier access to bank financing, particularly for small and medium-sized businesses (SMEs), will be the greatest incentive!

For information on investment in Spain, contact corporate law firm Argali Abogados.

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