Despite the unprecedented rise in interest rates, in Spain, the non-performing loan ratio for households and corporations remains at an all-time low. The outstanding amounts of non-performing loans have even continued to decrease, despite the deterioration of the creditworthiness of some borrowers. A more sustained economic growth and a more moderate inflation than in other eurozone countries in 2023 undoubtedly played a role in these developments.
According to the latest figures from the Bank of Spain, the non-performing loan ratio remained at 3.4% in July 2023 for the second consecutive month. This level has not been seen since December 2008, and is disproportionate to the peak of 13.8% reached in December 2013. The stability of the non-performing loan ratio is all the more remarkable since 52% of outstanding loans to Spanish households and corporations are variable-rate loans, and the rates used as a reference for the pricing of these loans have risen sharply in recent months. For example, the 12-month EURIBOR, which is the main benchmark rate for housing loans, went from -0.53% in February 2022 to 3.67% in July 2023. At the same time, the interest rate on the outstanding amounts of housing loans to Spanish households rose from 1% to over 3%. This increase in the cost of loans is likely to continue, since the 12-month EURIBOR reached 4.20% at the beginning of October.
The ability of some borrowers to repay has therefore been mechanically eroded. This was reflected, in particular, in an increase in the share of total outstanding loans of which the quality has decreased significantly without, however, becoming non-performing. The proportion of these loans in Stage 2, according to IFRS 9 accounting terminology, therefore rose slightly in 2023 after falling back in 2022, and remains higher than before the Covid-19 pandemic.
A scenario comparable to that seen in 2008-2014, which saw the link between the great financial crisis and the sovereign debt crisis, now seems unlikely. Banks have not reduced by much the significant provisions they had built up during the pandemic. Households and businesses have largely turned to fixed-rate loans for their new borrowings during the period of low interest rates, which is now protecting them more from the effects of rising rates. They have also very firmly deleveraged since 2013, which helps to limit the effects of the rise in interest rates on their financial expenses. And lastly, despite a marked slowdown in 2023, and in 2024, the Spanish economy should maintain higher growth than its main European partners. These various factors suggest to us a limited increase in non-performing loan ratios by the end of 2024.
