Banks have provided 340 billion euros in new financing to households and businesses up to October, according to the latest data from the Bank of Spain. This figure doubles the total amount of European funds Spain will receive through non-repayable transfers and loans. 80% of this new financing has been allocated to businesses, reflecting the banking sector’s fundamental role in growth and prosperity.
This new financing has moderated compared to that provided last year, due, on the one hand, to the sharp increase in demand observed once COVID-19 was overcome, when households and businesses resumed their consumption and investment projects. On the other hand, it is also explained by the lower demand for funds recorded amidst the current uncertainty, driven by the European Central Bank’s (ECB) interest rate hikes to combat inflation and by heightened geopolitical risks.
A recent Cepyme report confirms these two factors: “the demand for financing falls due to rising interest rates and economic uncertainty.” Similarly, a survey of European SMEs conducted by the ECB indicates that the combination of higher costs and reduced business is the most significant factor affecting their future prospects. Access to financing, especially from banks, is not an issue.
Focusing again on Spain, half of companies’ external financing comes from credit institutions, and the other half from issued debt and capital. In all cases, a moderate decrease is registered, with interest rates in our country below the Eurozone average.
Regarding new loans obtained by households, they exceeded 72 billion euros up to October. Again, the slight decrease is explained by the sharp increase in mortgage financing recorded a year ago due to the high demand for home purchases that had been pent up during the COVID-19 pandemic. In this case, it is worth noting the 2.5% decrease in the outstanding balance due to early loan amortization, largely attributable to the rise in official interest rates to combat inflation. The mortgage balance represents almost half of the GDP and is the best indicator of the importance of homeownership for Spanish households.
Financing is essential for driving economic growth. However, it must be responsible and transparent financing, like that provided by banks. In fact, the ECB is once again warning about the vulnerability that non-bank financing can bring to the Eurozone. In its latest financial stability report, it explains how, in situations of financial stress and uncertainty, the temptation to find financing outside the traditional—regulated and supervised—banking circuit increases. This pressure can threaten financial stability in a context of reduced liquidity implemented by the central banks themselves.
Diversification of funding sources is always desirable, but in times of instability and illiquidity in financial markets, it is bank financing that, in coordination with authorities, assumes the responsibility of maintaining funding for spending and investment in the economy. As European authorities reiterate, it is essential to have a healthy and resilient banking sector so that it can always fulfill its role of providing credit to the private sector, especially in difficult situations.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
