The Bank of Spain warns of credit tightening and anticipates lower demand


The Spanish bank tightened the granting of credits during the third quarter of the year and recorded a drop in demand for loans as a result of these tougher conditions, as stated in the latest Bank Loan Survey published by the Bank of Spain. this body It also expects the supply of credit to continue contracting and this contraction intensifies, while demand will continue to decline.

Until the end of September, Spanish banks tightened the conditions applied to loans and the criteria for granting new ones due to the increased perceived risks from deteriorating economic prospects and the increase in financing costs derived from the rise in interest rates promoted by the European Central Bank (ECB).

These criteria were hardened to a greater extent in mortgageswhere the registered steepest drop in concessions in a quarter since 2008, due to the worse economic outlook and the housing market, the worsening in the solvency of borrowers, the lower risk tolerance, the higher financing costs and the lower availability of funds. Along the same lines is the tightening of criteria for consumer loans, registering more denials of requested funds during the third quarter.

In the segment of companies, SMEs and large companies saw their conditions for access to credit tightened, also increasing the percentage of applications denied. The tightening of conditions materialized through an increase in cost, although in most segments said cost rose more slowly than market interest rates did, narrowing margins. While supply contracted, demand for loans fell in all segments, due to higher financing costs and, in the case of households, lower consumer confidence, which was influenced by the increase in uncertainty, according to the results reflected by the Bank of Spain.

Supply and demand will continue to contract

Looking ahead to the fourth quarter of 2022, the financial institutions participating in the supervisor’s survey expect that, once again, there will be a generalized contraction in credit supply and demand, in a context of deteriorating macroeconomic prospects and in the that the process of normalizing monetary policy is expected to continue.

As for credit to households, the banks anticipate that in the last part of the year the pace of decline in the supply and demand for loans will intensify, both for house purchases and for the purchase of consumer goods. Similarly, in the business segment, Spanish entities predict that the pattern of tightening of the criteria for granting loans will be accentuated as well as the fall in demand.

Impact of ECB measures

The Bank Loan Survey also reflects that Spanish financial institutions received a deterioration of the conditions of access to the retail and wholesale financing markets in the third trimester. Entities also reflected a negative impact on their financial situation due to the end of Eurosystem asset purchases, also affecting the conditions under which they accessed financing during the last six months.

The Spanish banks indicated that, by abandoning the negative values ​​in July, the remuneration of the deposit facility favored a slight increase in their profitability, contrary to what was declared by the entities of the euro area, which indicated that this remuneration between April and September had an adverse impact on its profitability.

Regarding the effect of the funds obtained in the longer-term financing operations with a specific objective (TLTRO), the financial entities of both areas reported that they would have continued to favor a moderate increase in their profitability and an improvement in their financing conditions. , although the impact was less intense than six months ago. According to the Spanish entities, the impact of these three measures on the credit policy and the volume of financing granted would already be “very little or nil”.


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