Banks also have their piggy banks. Santander, BBVA, CaixaBank, Sabadell and Bankinter are saving more than 49,800 million euros to protect themselves from the delinquency of their clients in a context of economic uncertainty due to the impact of the war in Ukraine. This is the amount of the bad debt funds that the five have at the end of the first quarter of the year.
The number represents a 2.9% increase compared to the previous quarter, the fourth of 2021, a period in which the economy grew due to the remission of the pandemic, the improvement of the labor market or the deployment of European funds. The invasion of Ukraine by Vladimir Putin had not yet taken place either. Now, on the other hand, the entities recognize in their accounts that the optimism they had at the end of last year is moderating.
Bad debt funds are used to mitigate credit risk of banks, that is, the possibility that the clients to whom they grant financing, whether they are companies or individuals, fail to comply with their obligations or delay payment. If this is the case, the credits of those clients receive the qualification of doubtful and must be subject to surveillance by financial institutions. These are also required by law to endow the aforementioned funds with which they protect the quality of their balance sheets from the impact of customer insolvencies. The regulations set a mandatory minimum part to be disbursed, which entities can later voluntarily extend based on criteria of prudence.
In this way, the increase in the piggy bank of the five large banks registered during the first quarter of the year occurs in parallel to the growth of doubtful loans. Santander, BBVA, CaixaBank, Sabadell and Bankinter have loans in this condition for some 72,000 million euros as of March 31, 4.8% more than three months earlier. By having more impaired loans, they have had to increase the buffer against insolvency.
The highest protection also coincides with legal changes by regulators, which, in some of the markets in which financial institutions operate, now require earlier recognition of asset impairment.
The invasion of Ukraine “will have a substantial impact on both economic activity and inflation, through higher energy and raw material prices, greater stress on global supply chains, and a deterioration in agent confidence.” », indicates CaixaBank, which has revised downwards the growth of Spanish GDP for 2022 to 4.2% from 5.5%.
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The blow to the economy will be asymmetric, by region, and a clear negative impact on European countries is expected. “At the sectoral level, those energy-intensive sectors with greater dependence on gas, as well as those that use natural gas as an input, are the ones that show greater sensitivity to this new environment. Aluminium, paper, steel and glass stand out at a general level, and basic chemicals, construction materials and fertilizers specifically for gas”, affirms BBVA.
The concern about the quality of the assets of the entities has already been warned by organizations such as the Bank of Spain, which in its latest financial stability report highlights that in 2021 the bank accumulates 94,000 million in loans with a high risk of default. This figure is equivalent to 8.1% of the financing they had granted to companies and households.