The rise in interest rates has already increased the cost of financing companies by an average of 60% so far this year, according to the latest data up to July. And the worst is yet to come. The Spanish bank anticipates that the rates at which it markets credit to companies will rise by more than one percentage point between now and the remainder of 2022, according to financial sources told this newspaper.
Companies, in the midst of the blow dealt by the perfect storm due to high inflation, the high cost of raw materials, the rise in energy and, those that needed it in a pandemic, the end of the lack of ICO guarantees, now also and given the need for liquidity they will have to pay at the end of this year a rate that more than doubles the one that was marketed 365 days before.
As an example, and based on the data published by the Bank of Spain, loans of up to 250,000 euros to companies had an average rate at the end of December 2021 of 2.3%. Currently (July) it stands at 3.3% due to the advance of the 3-month Euribor (which is used as a reference for loans to companies) and according to the sector’s forecasts, at the end of the year it will rise up to 4.3%. In the case of loans between 250,000 euros and one million euros, the average rate at the end of last year was 1.41%, currently it stands at 1.96% and by December it will rise to 2.96%, approximately. Finally, for credits for an amount greater than one million euros (the most demanded), in December the average interest was 1.12%; now it is at 1.64% and will reach 2.64% three months from now, always according to the sector’s forecast that the rates for these loans will become more expensive by more than 100 basis points in the remainder of the quarter.
vertical ascent
From the financial sector they admit to this newspaper that it is very difficult to predict what is to come. Especially, when the Euribor has already broken forecasts repeatedly so far this year and because there has never been such a rapid rise in interest rates or in the main reference index for loans.
The European Central Bank (ECB) ; it has done so again in September with and will do so throughout the year on several more occasions until they reach 2.5% in December, according to analysts. The 3-month Euribor has advanced much faster, taking the first steps (although still timid at the time) forward in February, in the heat of the first official announcement by the ECB that there would be a rate hike in the euro zone. Thus, from December 2021, when the three-month Euribor closed in negative, at -0.572%, until this September 15, which closed at 1.030%, the indicator has climbed almost 1.5 percentage points. Financiers assure that this rise is being “vertical”, something that had not happened before. For this reason, they avoid extrapolating the situation to past times. Despite the fact that the 3-month Euribor (for which they expect it to exceed 1.5% at the end of the year) reaches levels of the past -that level was seen for the last time in 2011-, they assure that a correlation cannot be made that the price of financing is also going to be as it was then (with rates of up to 6%) since the situation is different. Then, in 2011, the great crisis due to the real estate bubble had already exploded and delinquency levels, although they had not yet reached their highest point, were higher than the current ones with a ratio that was close to 8%. Now it is at 3.88%.
More delinquencies
In addition, financing to companies may be further tightened depending on macroeconomic circumstances. Spanish banking, according to the Bank Loan Survey carried out by the Bank of Spain, anticipates that in this last part of the year it will tighten both the requirements and the conditions of loans to companies and households, given the greater economic uncertainty and therefore of the own customers. This will be worsened if delinquencies begin to surface.
At the moment, the ratio remains at the lowest levels of the last thirteen years, but experts are already anticipating that it will begin to rebound by the end of the year. The consulting firm EY, in a report published this spring, pointed out that the delinquency of Spanish banks will climb to 4.6% at the end of this year to drop, but very timidly, to 4.5% in 2023. For its part , the S&P forecast is that non-performing assets, that is, those that are the sum of foreclosed assets (property, land, premises, etc.) plus doubtful loans (those with three months of non-payment) exceed 6% at the end of 2021 to around 7% at the end of this year.
Likewise, the demand for liquidity from companies and households will also drop, according to sector forecasts, on the one hand due to the higher price of financing, on the other because economic uncertainty leads to lower investments and also because customers who already have loans will have to assume a greater financial effort with the rise in interest rates.
Household situation
The 12-month Euribor is already at 2.2%, so the year could end at levels close to 3% with the next interest rate hikes. This implies that the average mortgage will become more expensive by 3,000 euros per year in December 2022, compared to what was paid in December 2021. These calculations are made on a mortgage of 145,500 euros (which according to the INE was the average mortgage in December of last year), with a repayment period of 23 years and a spread plus Euribor of 0.92%. In other words, if customers then paid 531 euros per month for their real estate loan, if the bank reviewed their mortgage at the end of this year, they would pay 780 euros per month.
Apart from what mortgages have become more expensive for individuals due to the increase in the Euribor, new financing for this object has also become more expensive. The Annual Equivalent Rate (APR) at which Spanish banks marketed mortgages in July (latest data available) was 1.91%, while it started the year at 1.54%. That is, it has become more expensive by 25%.
The mortgages that have risen the most are those with a fixed rate, due to the movement made by the financial sector to make these loans more expensive to make them less attractive in order to promote the sale of variables, finally profitable after five years of interest rates in negative.
While at the end of 2021 the main banks in the country marketed fixed-rate mortgages with an average interest of 2.11%, in August it already amounted to 3.26%. And it will continue to rise. In fact, the mortgage experts from the Negotiating Agency forecast that the average price of the loans at the end of 2022.
In the case of credit for regular consumption, interest has also risen due to the greater demand
Experts say that families have already begun to see the effect of inflation and higher energy prices on their pockets. This is seen by the , also known as deferred payment credit cards, since it is the system that the most vulnerable households use the most in complex situations. Entities, faced with the greater risk of families, tighten access to consumer credit for households, in favor of revolving with higher interest rates. Currently these loans are marketed with an average interest rate of 18%.
In the case of credit for regular consumption, interest has also risen due to the greater demand, although in a much lighter way than in mortgages. At the end of July, the average APR at which the entities marketed these loans was already close to 8%, a rate that had not yet been seen so far this year.
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