Spanish banks are preparing for a rebound in defaulted payments.
The European Central Bank (ECB) has calculated its estimates following stress tests at the start of the month, revealing that various state-backed guarantee programs launched to boost credit during the coronavirus pandemic are likely to have a negative impact of around 21 billion euros.
The ECB revealed that the figure could rise to as much as 42 billion euros in the worst case scenario.
Spanish banks including Santander, Bankia, Sabadell, BBVA, Bankinter and Caixabank are all preparing contingency plans in the form of significant provisions in anticipation of a default payment rebound spike. In order to cover late payments a total of just over 11 billion has been set aside for the rest of the year and 2021.
Under its most severe scenario, the ECB estimates that around €72 billion in guaranteed loans will default.
Banks across Spain have been putting strategies in place to deal with defaulting loans such as Sabadell who revealed they would be closely monitoring sectors such as tourism and hotels as well as small companies and freelancers in catering, small trade and air transport in order to gain a clear understanding of how all sectors of the economy are recovering.
Banks are currently using a model established by the ECB as a result of the financial and real estate crisis of 2007 that determines percentages based on the loan portfolio. The unprecedented nature of the pandemic however means that predicting future trends and recovery is almost impossible.
Major banks including Caixabank and Sabadell revealed that while they currently have a default of 3.5% by mid-end 2021 they expect a rebound of up to 5%.
CEO of Santander, Jose Antonio Alvarez, said during the presentation of results that “the expiration of the moratoriums that are taking place register little delinquency, until now” with CaixaBank CEO Gonzalo Gortazar acknowledging that “we hope that this will be particularly noticeable in credit to companies and also in consumption, which will be the first to show signs of weakness”.