With a credit balance of \u20ac1.7 trillion and growth of 7.1%, AEB banks reached a historic high in 2022 and are consolidating their position as a key element in driving economic growth and prosperity in those countries where they operate and where bank financing predominates among households and businesses, such as Spain.<\/p>\n
Among all banks operating in Spain, 60% of their financing goes to households, with 44% through mortgage loans. Spain is one of the countries in Europe with the highest percentage of home ownership thanks to the proper functioning of the mortgage market. The remaining 40% of bank financing goes to businesses. In the case of SMEs, which make up the majority of the business fabric in our country, banks are their main source of external financing. <\/p>\n
In their role as transmitters of the monetary policy determined by the European Central Bank (ECB), banks set financing conditions based on the reference of official interest rates and in a context of high competition. Since the beginning of the sharp interest rate increase implemented by the ECB to combat inflation, the rise in interest rates on mortgage loans has been similar to that observed in Europe and more moderate in the case of loans to SMEs. <\/p>\n
Generally speaking, the loan amortization system in Spain is based on periodically postpaid interest. This means that on each payment date (which may be annual, quarterly, or monthly), the interest accrued on the outstanding amount at the beginning of the settlement period is settled, at the agreed nominal interest rate and for the time elapsed since the previous settlement. <\/p>\n
For the amortization of the borrowed amount (principal), Spain, and also most European countries, generally use the French method or constant annuity method. Although it is referred to as an annuity, these are periodic payments that can also be monthly and quarterly, and include two parts: one for the repayment of the borrowed capital installment and another for the payment of interest owed. <\/p>\n
The French method under a fixed interest rate results in equal periodic payments throughout the life of the loan. In the composition of the payments, the portion allocated to principal amortization is increasing and the portion dedicated to interest payment is decreasing. This is because as the principal is repaid, less interest is generated. <\/p>\n
When the interest rate is variable, the annuity is constant during the period of time in which the reference interest rate is in effect. If it changes on the next date set as reference, the annuity will also change, and will remain constant again during the period of validity of the new interest rate. <\/p>\n
Other long-term loan amortization methods are also used in Spain, although more marginally. Perhaps the most notable is known as the German method, also with fixed annuities, but where interest is prepaid, being paid at the beginning of each period and not at the end as would be the case in the French method. <\/p>\n
There is a complementary modality to bank financing, which is that provided by non-bank financial intermediaries (NBFIs). This non-bank credit has experienced noteworthy growth over the last decade, representing 50% of financial assets worldwide. Behind this growth is greater regulation and strict supervision of banks compared to these intermediaries, in a context characterized by very expansive monetary conditions from central banks. <\/p>\n
Financial markets\u2014accustomed to historically low and even negative interest rates, as occurred in Europe during the last decade\u2014are now adjusting to a return to normality in monetary policy and to the slowdown in the global economy.<\/p>\n
Banks are the main source of financing for businesses in Europe. They represent more than 70% of the financing received. Although this percentage is much higher in the case of small businesses, something that does not occur in other countries such as the United States or the United Kingdom, where there is greater dependence on market financing. Diversification in financing sources is always desirable, but in times of instability and illiquidity in financial markets, it is bank financing that assumes\u2014in coordination with the authorities\u2014the responsibility of maintaining financing for spending and investment in the economy. That is why 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. <\/p>\n
The priority for banks is their customers, focusing their development strategy on this objective. If innovation and adaptation are in the DNA of banks, both characteristics translate into constant improvement of service and customer support. We saw this during the health crisis in the support provided to households and businesses, and we are seeing it in recent months with the measures implemented to help families most affected by the rapid rise in official interest rates decided by the European Central Bank. <\/p>\n