The decline in non-performing loans at a European level is key to completing the banking union, especially in the establishment of a common deposit guarantee fund. However, it is also an essential requirement for recovering profitability and thus strengthening the sector’s stability in the medium term. The reduction in non-performing loans releases provisions, although what is truly relevant is that it allows more margin to finance households and businesses through a more efficient use of capital. <\/p>\n
The latest known figures for bank non-performing loans in Spain are increasingly close to the European average and not far from the authorities’ implicit target of 4%. We would already be at this level if we consider the international business of our entities. This represents a significant downward trend from the peak levels seen during the crisis, where the economic improvement does not detract from the efforts made by banks to clean up their balance sheets. <\/p>\n
The sharp decline in non-performing loans in Spain contrasts with the more moderate fall in the non-performing loan ratio. It is surprising that households continue to reduce past debt while new financing grows under very favorable conditions and in a context of economic optimism. The decline in the bank credit balance can also be explained by the diversification of financing sources for large companies, which currently choose to obtain it in the wholesale market, greatly favored by the ECB’s extraordinary expansive monetary measures, which are in principle also exceptional. <\/p>\n
In a context of artificially low and negative interest rates, under demanding regulation and given the investment required for digital transformation, credit institutions need to continue increasing their profitability, which is lower than the cost of capital.<\/p>\n