The bank will have to raise provisions this year due to the foreseeable credit deterioration, according to the AHE

Doubts maintained their positive behavior in the second quarter

MADRID, 28 Sep. (EUROPA PRESS) -

The Spanish Mortgage Association (AHE) has verified that the doubtfulness of the financial sector maintained its positive path in the second quarter of the year thanks to the reactivation of the liquidation operations of problematic assets after the stoppage caused by the pandemic.

However, as revealed in its latest quarterly report, the downside risks in activity arising from existing geopolitical tensions, inflationary pressures in the shopping basket and the normalization of interest rates "augurs a scenario of deterioration in the credit quality of the portfolios that possibly requires increasing the allocation of provisions throughout the current year".

For the time being, the rate hike by the European Central Bank (ECB) has not resulted in a reclassification of loans as non-performing. In the second quarter, the resident private sector doubtful loan rate fell below 4% for the first time since 2008, to 3.9%, compared to 4.2% in the first quarter and 4.4% in the same period of one year before.

Non-performing exposures contracted by 11.6%, to 47,916 million euros, while the outstanding balance experienced a slight increase of 0.2%, which places the volume of the portfolio at 1.23 trillion euros.

The doubtful asset ratio of financing for house purchase stood at 2.7%, down from 2.9% in the previous quarter and 3% a year earlier. The doubtful balance fell by 11.5%, to 13,188 million euros, reaching a minimum since 2008.

The rate of doubtful loans for housing renovation stood at 4.5% (compared to 4.8% in March and 5.4% a year earlier), while the consumer loan portfolio reduced the doubtfulness to 4.6%, compared to 4.9% in the previous quarter and 5% in the previous year.

Regarding the portfolio of companies, the productive activities improved their ratio of doubtful assets to 4.6%, compared to 4.8% in March and 5% in June 2021.

Within this segment, the improvement in real estate activities stands out, which placed its doubtful loan ratio at 4.1%, compared to 4.3% in the first quarter and the 4.6% observed a year earlier, thanks to the fact that the Doubtful balance fell 17.6% in the year and 8.1% in the quarter.

For its part, the doubtful loan rate in the construction sector stood at 8.4%, at the same level as in the previous quarter, despite the 2% reduction in the doubtful balance, due to the fact that the outstanding balance of the portfolio (denominator of the coefficient) has registered a drop similar to that of doubtful exposures (numerator in the ratio. The improvement was more notable compared to a year earlier, when the doubtful ratio stood at 9.1%, with a drop in the doubtful balance of 11%.

Despite this good performance of non-performing loans in the financial sector, the AHE foresees a deterioration in the credit quality of the portfolios that will require an increase in provisions during the current year, above the current rate of 45% maintained by the sector finance in total credit to the private sector.

In addition, he pointed out that the rise in interest rates by the ECB is translating into a significant increase in the fees that households with a current variable-rate mortgage must pay, after minimum levels.

This situation would have led the Government and banks to study some formula aimed at alleviating the financial burden of the most vulnerable households, the AHE has indicated.

In any case, the association has recalled that the vast majority of recently mortgaged households will remain oblivious to the situation of rising interest rates, given that in recent years there has been a greater concentration of fixed-rate mortgages.