The Bank of Spain estimates ICO loans at risk of default at 21,000 million and warns of further deterioration due to war and energy

The Bank of Spain warns that the deterioration of ICO credits guaranteed by the State to deal with the pandemic continues to increase and believes that the impact of the high cost of energy may entail a greater risk for public coffers and the solvency of financial entities.

Specifically, the financial regulator estimates

' at the end of 2021 at 20%, that is, granted to clients in whom there is a risk that they will not be able to repay the financing.

They are four points more than in the first half of the year and in gross figures it represents 17,900 million euros.

The latest financial stability report presented by the agency also warns of a notable increase in doubtful loans, which are those in which the client fails to face the return of the principal or interest for a period of 90 days.

In this case, the ratio reaches 3.5% after almost doubling in six months and now reaches 3,000 million.

Most of these credits are linked to sectors especially hit by the pandemic, such as

Adding both figures, the Bank of Spain points to the risk of non-payment in a total financing of 21,000 million euros, equivalent to a quarter of the loans included in the guarantee program.

The Bank of Spain points out that the economic slowdown caused by the crisis in Ukraine, the sharp increase in energy costs and the rise in interest rates could continue to raise these figures in the coming months.

"Companies that have opted for ICO loans and that show some sign of vulnerability could also see their credit quality deteriorate further due to the impacts of the war in Ukraine and the rise in inflation, especially in the sectors most affected by the new crisis" , highlights the report.

Precisely, 35% of publicly guaranteed loans end their grace period in the second quarter of 2022 and this will shed light on the real financial status of debtors.

The CEO of Santander,

downplayed these maturities yesterday and trusted that the bulk of customers will be able to start repaying the loan without major complications.

The regulator is more cautious, although he believes that the recent measures approved by the government to facilitate the refinancing of credits and the maintenance of lax conditions in working capital lines will help mitigate the impact.

On the other hand, the Bank of Spain urges the Executive of

to design an adjustment plan that addresses one of the greatest vulnerabilities suffered by the Spanish economy: its enormous volume of public debt compared to its GDP.

This indicator has risen by 20 points during the pandemic and may entail significant risks for the country if the cost of financing increases as a result of the withdrawal of stimuli by central banks.

"The high levels of deficit and public debt make the Spanish economy vulnerable to deterioration in financing conditions and limits the fiscal space to react to the materialization of new risks. In particular, this vulnerability may become more evident in a context of high uncertainty such as the current one, in which episodes of risk aversion associated with further deterioration in the geopolitical situation may occur", warns the financial stability report.

The Bank of Spain believes that it is still too early to curb public spending policies due to the uncertainties that hang over the economy since it has not yet recovered the levels prior to the outbreak of Covid.

However, he asks that the action plan be designed and that it be ready to react to a worsening of the global financial situation.

If no action is taken, he adds, the public debt will continue to rise "given the foreseeable increase in expenses linked to the aging of the population", which entails "a clear risk for the Spanish economy and for its agents".

"The longer it takes to announce measures that counteract the current structural deficit and the growing expenses due to the aging population, the more likely it will be that agents will begin to distrust the effective application of said measures or the more likely it will be the appearance of a new economic disturbance. negative, which our economy would face with limited room for manoeuvre", he points out.

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