MADRID – Spanish banks must carefully monitor risks and a potential rise in bad loans on state-backed lending granted in the pandemic as repayment freezes are lifted and indirect impacts from the Ukraine war show up in credit portfolios, the Bank of Spain’s deputy governor said on Tuesday.
“There are still many uncertainties around the economy, now fuelled by the Ukraine crisis and therefore we must be vigilant about the evolution of the loans, even more so now that the grace periods of the loans guaranteed by the ICO will begin to be lifted”, Deputy Governor Margarita Delgado said.
In 2020, the government approved up to 140 billion euros ($155.39 billion) in so-called ICO liquidity lines, where Spain guaranteed up to 80% of the loans that were channelled through banks to small and mid-sized companies and the self-employed.
On Tuesday, the government approved a new line of 10 billion euros in soft loans, with a 12 month-freeze on repayments, or so-called grace periods, where companies are required to pay only interest and not the principal on a loan.
On existing COVID-19 loans, the government has extended on a general basis maturities by between eight to 10 years and automatically prolonged grace periods by six months.
Delgado said on Tuesday that she expected companies to start experiencing the financial burden of repaying loans in the second quarter.
Regarding bad loans, Delgado said that during 2021 the volume of non-performing assets followed the downward trend of recent years, “although at a much slower pace from what had been occurring before the pandemic.”
As of January, non-performing loans at Spanish banks stood at 4.32%, still far from its 13.6% peak in December of 2013.
Delgado said however that growth of loans subject to special surveillance, or considered subject to heightened credit risk, had been moderate in the last half of last year, “although it is still growing at double-digit rates.”
($1 = 0.9010 euros)