The European Banking Authority (EBA) recognizes in its latest transparency exercise that these loans are becoming a “source of concern”
There is progress in solvency, profitability and also in liquidity. The European Banking Authority (EBA) has made clear in its latest transparency report, which publishes annually, the sector’s resistance to the pandemic. However, it warns of latent risks that are beginning to be a constant in the alerts of international organizations. Among them, the deterioration that is beginning to be observed in loans with arrears and in those with a public guarantee which, in the Spanish case, focus on loans guaranteed by the Official Credit Institute (ICO).
It is true that the bad debt ratio has continued to improve throughout European banking, going from 2.9% in the second quarter of 2020 to 2.3% in the same period this year. But the EBA warns that the ratio in the sectors most affected by the pandemic, such as tourism, leisure or hospitality, continues to rise. And at this point is where he draws attention to loans under moratoriums or public guarantees. “They are a source of concern,” they admit from the body.
The EBA thus joins the Bank of Spain, which in a recent report warned about the risk of non-payment in this type of credits granted during the crisis, on which the State assumed between 60% and 80% (in the case of the self-employed) of risk.
In that report, the agency detailed that the percentage of loans linked to overdue or abandoned arrears with signs of credit deterioration in Spain reached 20% in June for loans under special surveillance (those that have not yet defaulted but are beginning to present the first deterioration symptoms). A year ago, it was 19%. In the case of doubtful loans, the percentage rose to 9% (compared to 8% observed in December 2020). “This deterioration could increase in the coming quarters, since an important part of the arrears has expired very recently, throughout the second quarter of 2021,” they warned from the agency, recognizing, however, that the loans that have received arrears represent a small percentage of the portfolio of Spanish entities.
In total, and according to the data detailed by the agency, there are currently 93,000 million euros with the probability of becoming defaulters. Some 58,000 million would correspond to companies in sectors most affected by the crisis and the rest, another 35,000 million, from families.
In Europe as a whole, and according to data from the body chaired by José Manuel Campa, the ratio of credits located in what is known as ‘stage 2’, the step for the valuation of loans under special surveillance, stood at the end of June 2021 in 8.8%. This represents an increase of six tenths compared to a year earlier.
In this context, the pan-European banking supervisor also warns that the acceleration in house prices, together with a recent focus of banks on mortgage loans “could be a source of vulnerability in the future.”
“Fears about a potential deterioration in asset quality have not materialized, except for the sectors most affected by the pandemic. Looking ahead, banks and macro and micro-prudential authorities need to be prepared in the event of a deterioration in the economic outlook or in the event that inflationary pressures translate into rate hikes, ”the EBA insists in the document.
has positively valued the progress made by European banks during the Covid-19 crisis, with improvements in solvency, profitability and liquidity, but has warned of a growing risk in asset price corrections, including in the real estate sector.
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