The Bank of Spain warns of rise in arrears in Spain

According to an article published in El País yesterday, the financial sector had a very good year in 2006 according to a report by the Bank of Spain which showed that the net profits made by banks, building societies and credit cooperatives were around 25,717 million euros – 33.6% more than in 2005. Furthermore the number of people getting into arrears was very low. However, it also warns that record profits in the financial sector were down to the amount of credit granted.

Figures from the Bank of Spain show that the number of people or entities getting into arrears doubled its rate of growth in 2006, going up by 10% with respect to the previous year – the rate of growth of arrears in 2005 was just 4.6% which is 15,219 million euros. However, despite this growth, the number of people or entities in arrears continues to be very low at 0.6%.

Credit granted to the private sector amounted to almost 2 billion euros in December last year, a growth of 24.

8% compared to 2005. This growth is even higher at 26% if credit granted to companies and Spanish families is taken into account. However, credit granted to families for the purpose of buying a house or flat grew at a slightly lower rate at 22% while credit granted to companies grew significantly by 30.3%.

The real estate sector adds weight to these figures in that credit to building firms rose by 33% and credit to property developers rose by 50%. The Bank of Spain highlighted that this was the most notable growth for ten years. One reason for such a high level of growth in the building sector could be companies trying to avoid extra cost when new rules that are due to come into effect soon on the quality of building work.

The Bank of Spain also underlined the ratio of people getting into arrears is still very low especially for mortgages for which the rate is just 0.

4%. Nevertheless, it warned that with interest rates on the rise people or entities getting into arrears will probably increase and that ‘complacency should be avoided’ and ‘the evolution of costs’ should be monitored closely.