Almost one in five loans guaranteed by the ICO is already at risk of default | Economy of Mallorca

The Bank of Spain has warned this Friday that more than 4% of the financing granted by banks with ICO guarantees is unpaid and 22.7% was under special surveillance due to the risk of non-payment at the end of March,or that translates into about 19,500 million.

During his speech at the APIE course at the Menéndez Pelayo International University, Hernández de Cos explained that in recent quarters a deterioration in the credit quality of financing granted with ICO guarantees has been observed and there is a latent risk due to loans under special surveillance.

That risk of default, in the case of materializing, it will not only affect the banks but the State itself for the support of each operationwhich will cause an increase in both the debt and the public deficit when assuming these losses.

In addition, he recalled, it must be taken into account that a significant part of these loans granted with ICO guarantees still enjoy a grace periodwhich will end around the summer of this year.

The credit exposures that show some sign of deterioration are those that may be, in turn, more vulnerable to the materialization of the risks arising from the current context, he added.

For this reason, the governor considers that it is necessary to follow its evolution with special attention, as well as to carry out “an early and adequate recognition of potential losses.”

In any case, if we look at the entire loan portfolio, the evolution of loans under special supervision and refinanced in the first quarter of 2022 has been favourable. The former fell by 2.2% in the year-on-year rate and the latter have slowed their growth rate to 8.8%.

Hernández de Cos has also alluded to the dynamism of the real estate market with a volume of home sales in the first quarter of the year 22% higher than those registered in the same period of 2019.

This has been accompanied by an increase in the granting of new mortgages at the highest rate since 2010, however, the governor has highlighted that at the same time there has been a high volume of amortizations.

For its part, the balance of credit for construction and real estate activities has continued to fall and the construction of new homes has not picked up with the same intensity as demand. This is probably being reflected in the evolution of prices, he added.

The governor has re-emphasized that there are some “mild” signs of overvaluation of house prices since the start of 2020 and could be further boosted if the acceleration in house prices seen in the first quarter of 2022 consolidates.

And although they are still close to the equilibrium values ​​and “far from the levels reached before the global financial crisis”, he considers that it is necessary to continue closely monitoring their evolution in the coming quarters.

In his opinion, the increases could be moderated by the lower disposable income of families and the probability that financing conditions will worsen, but, on the other hand, the notable increase in the cost of construction materials could raise final prices.