The coronavirus crisis has already left the first defaults on bank balance sheets by clients who cannot cope with the letter or maturity of their credits, in most cases linked to consumption. Although citizens can currently take advantage of a three-month moratorium approved by the Government or proposed by entities to pay only the interest on credit for a longer time, the truth is that financial groups expect a significant increase in the rate of delinquency - unpaid credits over total loans granted - in the coming quarters.

"How far could the default be?" Has been the great question asked by investors and journalists during the latest presentations of the sector's results. No one knows, but the Bank of Spain is already making its own internal forecasts in the face of one of the possible alerts that threaten to turn the current economic crisis into a financial crisis.

The records of the supervisory body of the economy warn that historically the default rate rises 0.7% for each loss of 1% of GDP. Estimating a fall in the economy for this year close to 9.5% -the scenario that the Bank of Spain itself and the panel of experts from Funcas foresees-, non-performing loans could increase by up to 6.6 percentage points.

This increase would mean more than doubling the current rate of 4.9% and exceeding the maximum record of 8% reached during the 2008 crisis. The figure is only a projection because as Governor Pablo Hernández de Cos recalled yesterday during his appearance in the Congress of Deputies, it is still early to calculate the real magnitude of the impact on the coronavirus economy.

Of course, De Cos warned that this will be notable: "The magnitude of the decline in GDP that is projected at this time is very high, which could lead to a proportionally greater effect."

In the scenario drawn up by the Bank of Spain, default would start with consumer loans, which have grown to double-digit figures in recent years. "Historical experience shows that, in the face of falling household incomes, delinquencies in consumer loans tend to increase somewhat rapidly," its governor said yesterday.

But these loans are not the greatest threat to bank balances today, since they represent around 26% of total credit extended to households. The real problem for the financial sector, and consequently for the economy as a whole, will occur if defaults are massively transferred to mortgage payments. Something that, according to the Bank of Spain, will only occur if the current fall in income suffered by households is prolonged over time and the coronavirus crisis is not as transitory as today the Government proclaims.

"If indeed it is verified that the crisis is temporary in nature, it is to be expected that this last credit component will suffer more moderate delinquency rates," De Cos stressed yesterday .

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