After several years enduring a malfunctioning refrigerator, perhaps the time has come to replace it. When it first started showing problems four years ago, circumstances did not make it possible. Although financing conditions were favorable, there was too much uncertainty. Now, conditions are much better and, moreover, doubts about the economy’s performance have dissipated.
Why is consumer credit now growing so strongly? It is probably reflecting consumption postponed during the crisis. It is increasing at rates of 15% annually, almost double the average growth in the eurozone. But between 2011 and 2012 it fell by 12% in Spain compared to a 2% decline in Europe. We can interpret the current strong increase in consumer credit as a return to normality in a context of better economic and employment prospects for Spanish households.
Consumer credit accounts for 57% of non-mortgage bank financing to households. And this represents 16.7% of total lending to households. It does not appear to be an excessive percentage, even below pre-crisis levels. Does it pose a risk for banks? Consumer financing has lower repayment guarantees than, for example, mortgage loans. However, this does not mean it implies a risk that banks cannot limit and manage. Precisely the regulatory changes during the crisis have sought to strengthen customer protection and provide greater stability to the financial sector. Banks are responsible in granting credit, and now operate under a framework of greater transparency and control by the authorities. And also of high banking competition such as that existing in Spain. All of this benefits the customer.
The increase in credit for the acquisition of durable consumer goods is driving the strong dynamism of non-mortgage financing to households. At the end of last year, this was growing at rates of 25%, compared to 5% for the rest of consumer financing. This is one of the credit modalities with the lowest default rate, currently at 3.3% compared to 3.9% at the end of last year, showing a clearly decreasing trend. This improvement in the default rate contrasts with the relative stability at recent low levels of the rest of bank consumer financing. These are not worrying figures.
The ECB’s latest Bank Lending Survey shows that financing conditions are improving in Spain, especially for households, which have strongly increased their demand for credit. In Europe, the supply of funds by credit institutions is also improving, but with much more moderate household demand. The relatively higher demand for bank consumer financing in Spain is also an indication of consumption recovering ground after the crisis, although now it is accentuated by a scenario such as the current one of strong economic performance.
The Bank of Spain states in its latest financial stability report that the strong growth in consumer financing must be viewed against reduced starting levels. It also warns, now that lending is returning to normality, that it will closely monitor its evolution in the coming quarters. Undoubtedly, the supervisor provides a guarantee against potential future excesses that may arise and makes clear the strict supervision to which banks are currently subject.
The ultimate objective of institutions is to drive growth and generate prosperity, which means financing, under the best possible conditions, the wishes and needs of households. Such as purchasing a new refrigerator when the current one is failing. This commitment to customer service by banks largely explains the high dynamism of the Spanish economy.
