The Bank of Spain forecasts that Spanish financial institutions will tighten the criteria for granting credit in the second quarter, both for companies and for households, given the greater uncertainty associated with the effects of the war in Ukraine on credit risk and the expectation of a less accommodative monetary policy, as recognized in the analytical article published after collecting the data from its ‘Survey on Bank Loans in Spain’ of April 2022.

The results of the survey reveal that financial institutions anticipate a general drop in credit demand during the second quarter of the year, both from companies and households. Eurozone entities also predict a contraction in credit supply in all segments in the second quarter, while they believe that business demand will continue to increase, that consumer credit will remain unchanged and that requests for credit will fall. Financing of families for the acquisition of housing.

In Spain, the entities surveyed anticipate a further tightening of the granting criteria and a slight decrease in demand in the business financing segment, given the increase in uncertainty associated with the impact that the war in Ukraine could have on economic activity.

Regarding credit for home financing, Spanish financial institutions also foresee a certain tightening of the criteria for granting loans and a drop in demand, interrupting the upward trend of the last four quarters.

They also predict a slight tightening of the criteria for granting consumer loans and a slight drop in demand in this segment in the second quarter of the year.

Firm credit tightening

The survey, in which ten Spanish entities participate, reveals that in the first quarter of 2022 the criteria for granting loans to companies were tightened, both in Spain and in the euro area as a whole, given the greater concern about the risks associated with the impact of the energy crisis and the Russian invasion in Ukraine. In Spain, the concession criteria were tightened more intensely in SMEs than in larger companies. Along these lines, the percentage of denied funding requests increased slightly.

As for loans to households, the criteria for granting credit remained stable in Spain between January and March, both in loans for house purchase and in consumer credit, while in the eurozone the criteria for granting credit were stable in loans for house purchase and registered a certain relaxation in financing for consumption.

In loans granted, in Spain the conditions applied to loans for home purchase were relaxed “somewhat” due to strong competition in this segment, while in the eurozone the conditions of consumer loans for families were eased and those of the financing segment for companies and those of loans to households for house purchase tightened.

Credit demand continued to increase moderately in both areas due to greater consumer confidence, almost across the board by segment, during the first quarter of the year, which reveals that the growing uncertainty that became apparent in March with the outbreak of the war in Ukraine had not yet significantly affected requests for funds.