“66% of the operations that are currently being proposed to Good Finance are approved and granted. Not too bad.” José Luis Olivas was right three weeks ago when he explained the entity’s credit policy during the presentation of its 2008 accounts. That is, but nevertheless, something quite different is the price at which these operations are being granted.
The type of mortgage reference
It has been significantly reduced since August last year, the conditions imposed by banks and savings banks have been tightening. This explains why banks have increased the spreads or spreads that apply to the loans they grant – the difference between the 12-month Euribor and what they really apply to the customer, that is, a kind of risk premium – both Companies as individuals.
And all this while the granting of credits and/or loans has been slowing down due to the unfavorable conditions that have been experienced in the wholesale financing markets.
The director of a Valencian bank branch warns this weekly that it has gone from a lax policy in the granting of credit to a tougher one: “Now we carry out deeper analyzes, we look with a magnifying glass at all the information when granting loans to both end customers and companies. Why do we grant less credits and at the same time we have raised our differentials? Basically, because it costs us more to finance ourselves in wholesale markets. “
Catch your fingers
The same director points out a very significant detail: “Until recently our policy in granting loans was to generate volume, while now it is to achieve profitability per operation. We have gone from demolition prices to normal prices, to do many operations to generate a lot of business with a reduced profit margin, less operations but with higher margins and always analyzing operations with a magnifying glass. Hence we reject many for fear of the risk of default. “
To explain it in a simple way, the following example is enough: “If we have granted a loan of one million euros to a company and it has lowered its sales by 25%, we will reduce the credit by the same amount. We do not want to catch fingers. “
It goes without saying that the increase in delinquency has become a great headache of the banking sector. In fact, only in the last quarter of last year, the default soared to 3.4%, four times more than the ratio at the end of 2007. In addition, the deterioration of the Spanish economy and the sharp rise in the unemployment rate caused the number of unpaid loans to increase between October and December 2008 at a rate of 29%.
And the worst is yet to come, according to experts consulted by THE BULLETIN. The second vice president of the Government and Minister of Economy and Finance, Pedro Solbes, recently warned that it is not yet known whether banks and savings banks will reach the historical record that was around 9% in the delinquency rate that was touched in 1993.
This explains why banks and savings banks
Slowed their financing operations during the past year, both to individuals and companies, while their financing conditions were tightening. To understand each other, they were reducing their capacity when it came to giving credit and on top of that, they were giving it a growing price. This is reported by the data contained in the monthly balances of both the Agree Bank and the Fine Bank, which appear on their respective public domain websites.
These numbers testify that the growth rate of credit to the non-financial private sector, that is, for companies and individuals, was reduced in Spain during 2008 – taking into account that the December data is still provisional – by 60.1%, while in the Eurozone as a whole it did so at a rate of 48.2%.