Fitch Ratings agency predicts a difficult 2022 for Spanish banks. The rating agency estimates that the financial sector will reach a peak in the default rate in 2022, which will be around 6.5% and 8%, although in any case it will depend on the evolution of the economic recovery, which is believed to be happening faster than others as borrowers’ credit fundamentals are stronger. This analysis is part of a reflection on the downsides and consequences to Spanish banks’ credit profiles that resulted from the economic and financial-market implications of the coronavirus pandemic.
Fitch expects Spanish banks’ asset quality to weaken as borrowers’ ability to pay comes under pressure from the consequences of the coronavirus crisis, “particularly when the support and containment measures expire”, the agency further advanced. But even though this possibility seems preoccupant, it is expected that Spain will better recover from this crisis and deterioration from it will be less notable, compared to 2013 when the impaired loan ratio peaked at 13%. This time, Spanish Banks are more suited, more prepared for critical times, as they now have balance sheets that are stronger and there’s less exposure to leveraged real estate.
In the opinion of the rating agency’s experts, in 2020 there was already “evidence” of a deterioration in asset quality due to the consequences of Covid-19, being one of them the appliance of cautious macro-economic assumptions for IFRS 9 in an attempt to anticipate said deterioration. Even after measures where taken, non-performing loans fell to 4.2%, down from 4.5% at the end of 2019.
Nevertheless, Fitch stresses that throughout the year, especially in the fourth quarter, banks have been identifying potential risks and have increased the number of loans classified as Stage 2, i.e., on special watch, the step prior to considering them doubtful. “SME and consumer lending will be the sectors most vulnerable to economic stress,” they conclude.