State guarantees and latent non-performance
Fecha: mayo 2022
Marta Alberni, Ángel Berges and María Rodríguez
One of the most noteworthy measures taken by the government to mitigate the effects of the war in Ukraine is the approval of a new state guarantee programme and extension of the maturities of the loans awarded under the pandemic guarantee scheme in an attempt to prevent geopolitical tensions from having compounding adverse effects on top of the toll taken by the pandemic. Extension of outstanding state guaranteed loans will come as a lifeline for the sectors and businesses most affected by the two crises. In the case of the banks, it will contain the materialisation of associated non-performance. Nonetheless, the increase in riskier stages of public guarantee
scheme (PGS) exposures could translate into growth in non-performance in the business loan segment, with the potential impact substantially higher in Spain than in Europe due to the higher weight of PGS exposures in total outstanding business loans. The possible increase in nonperformance is highly sensitive to both the level of impairment of stage-2 exposures, which determines the spillover to stage-3 classification, and the multiplier effect derived from pre-existing customer-level exposure. Depending on the combination of our estimates for these two factors, our analysis shows that the increase in the nonperformance ratio could be upwards of one percentage point. However, given the high degree of uncertainty characterizing the current economic climate, including over the path of interest rate increases, the impact on non-performance is difficult to quantify. In any event, non-performance should not translate into a significant increase in NPL coverage for two main reasons: (i) cautious front-loading of impairment provisioning by the banks in 2020 and 2021; and, (ii) the impact of the guarantees on the amount of losses incurred, as the banks’ exposure is ultimately limited to the percentage not covered by those public guarantees.