A problem of credit supply or demand? Neither. Banks perform three important functions: 1. They intermediate between savings and investment; 2. They provide financial services; 3. They provide means of payment. Ultimately, as a general conclusion to all of the above, we can say that banks are essential to finance economic activity and, in this way, meet customers’ needs. In Spain, more than 85% of financing for resident sectors is provided by credit institutions, a percentage above the European average. Consider that in the United States, bank financing barely covers 45% of the economy’s total funding needs. The important role of banks as a financer of growth is even more significant in Spain.
The Spanish economy is currently growing at annualised rates of 3%, more than double the growth recorded by the euro area (including our own economy as well). By common sense, you probably think that this rate of economic growth has been accompanied by a sharp increase in credit. This has not been the case. A problem of credit supply or demand? Neither, strictly speaking. In fact, surveys on banks’ willingness to lend are even more favourable in Spain than the European average. And domestic demand for funds, although weaker than in Europe, remains willing to use it. So what is the problem? The clean-up of existing debt.
