40. Spain
In 2022, the GDP of the Spanish economy grew strongly, by 5.8%, reaching pre-pandemic levels in 2022 Q3. The economy showed a strong recovery during the first semester but decelerated afterwards as the reopening effects from the pandemic vanished and in the face of extraordinary events such as the large-scale aggression of Russia against Ukraine which exacerbated the rise in commodity prices. The rise in inflation was intense and persistent. After reaching a peak in the summer, the rate of headline consumer price variation began to decline, but core inflation remained high. The ECB’s monetary policy tightening was sharp by historical standards, and financial conditions for companies became more restrictive.
The Survey on the Access to Finance of SMEs in the Euro Area (SAFE survey) reveals a deterioration in the perception of Spanish SMEs regarding the availability of bank credit since early 2022. Additionally, according to the SAFE survey, in 2022, there was an increase in the loan rejection rate to 6.39% (5.87% in the previous year). The demand for credit, proxied by loan applications, was also weak in this cycle, both due to the rise in interest rates and the deterioration of the macroeconomic environment and increased uncertainty.
In 2022, total outstanding business loans (excluding credit to sole proprietors) decreased slightly by 0.6% and reached EUR 470 billion, while outstanding SME loans experienced a greater decrease of 3.8%, to a total of EUR 228 billion. As a result, SME loans currently account for a share of 48.5% of total loans, 1.5 percentage points less than the previous year.
At the end of 2022, 4.21% of loans for productive activity in Spain were non-performing (NPLs), 0.8 pp lower than in December 2020. This decline – which was maintained during the first half of 2023- is mainly explained by a fall in non-performing assets of around 17% (numerator).
In this sense, the economic policy measures implemented during the pandemic have been important in maintaining the repayment capacity of debtors. In the case of companies, the operations guaranteed by the ICO have been important to expand credit under advantageous conditions, thus reducing impairments. On the other hand, the number of bankruptcies by non-financial corporations stood at 5 374 in 2022, which represents a rise of 21% compared to the previous year and an increase of 53% relative to 2020. This rise can largely be explained by recent reforms. First, the insolvency moratorium implemented to support businesses after the COVID-19 pandemic (in force since April 2020), ended on 30 June 2022). Secondly, the reform of the Spanish Bankruptcy Law entered into force on September 26, 2022, which enable a fresh start more appealing to sole proprietors and owners of small incorporated firms that had pledged personal guarantees to obtain funds for their businesses.
The volume of venture capital investment in Spain reached EUR 5.2 billion in 2022, which represents an increase of almost 20% compared to 2020.
The Spanish economy was more resilient than expected in 2022. Spanish GDP grew 5.8% in 2022, reaching pre-pandemic levels in 2022 Q3. The economy received a significant boost from the lifting of the remaining pandemic-related restrictions and the strength of tourism. But economic activity decelerated in the second half of the year as the reopening effects from the pandemic vanished and in the face of extraordinary events such as the large-scale aggression of Russia against Ukraine which exacerbated the rise in commodity prices. Spain, as a net energy importer, was particularly exposed to these effects. The heightened inflationary pressures, increased uncertainty, the worsening outlook for external markets and the gradual tightening of financing conditions slowed the economy. The activity was nevertheless sustained by fiscal policy measures which eased the consequences of the energy crisis.
The rise in inflation, which had started in 2021, was intense and persistent in the Euro Area and Spain. After reaching a peak in the summer of 2022, the rate of headline consumer price variation began to decline in Spain, but core inflation remained high as inflationary pressures continued spreading across the consumer basket through indirect effects. In view of these persistently high inflationary pressures, the ECB’s monetary policy tightening was sharp by historical standards. In December 2021, the ECB started to change its monetary policy stance, initially towards normalisation, by withdrawing the monetary stimulus generated during the pandemic (by terminating the net purchases under the PEEP and APP). From July 2022, the ECB began to hike policy rates at an unprecedented pace. The last interest rate hike was in September 2023. Over this period, the deposit facility rate increased by 450 bp, and the size of the ECB’s balance sheet started to shrink. The restrictive monetary policy stance led to a strong tightening of financial conditions in the Euro Area and Spain. The financing conditions for companies in Spain tightened over the course of 2022 and for most part of 2023.
According to the Spanish National Statistics Institute (INE), 99.9% of all firms (non-financial corporations (NFCs) and sole proprietors) were SMEs in December 2022, employing 63.7% of the business labour force. Of these, 56.7% were SMEs without employees, 39.1% were micro-enterprises, 3.6% small enterprises and 0.6% medium-sized enterprises. In terms of employment, the distribution is the following: SMEs without employees account for 9.5% of total employment, 20.3% micro-enterprises, 18.7% small enterprises and 15.2% medium-sized enterprises.
The higher cost of new lending affected loan demand, while some agents experienced more difficulties accessing credit. The debt service burden also increased for agents that had variable rate debt, or that had to refinance their debts at maturity, which increased their financial vulnerability. This was the case for the majority of SMEs whose bank debt is short-term and, therefore had to be refinanced at higher rates.
Despite the tightening in financial conditions, the volume of new loans to non-financial corporations continued to increase in 2022 as a whole. Thus, new business lending grew by 19.9%, reaching EUR 359 billion. In the case of new lending to SMEs (proxied by loans up to EUR 1 million and excluding credit to sole proprietors), it showed a similar path, although at a slower pace, growing 14.1% in 2022, up to EUR 173 billion. This meant a slight decrease in the share of new lending to smaller companies to 48.2%. However, since September 2022, the decline in the demand for credit, along with the greater difficulty in accessing it, has translated into a significant decrease in new financing raised by firms via bank loans. These trends continued over the course of 2023.
Regarding outstanding balances, total loans to non-financial corporations declined by 0.6% to stand at EUR 470 billion, while the SME outstanding business loan (excluding credit to sole proprietors) experienced a sharper decrease (3.6%) to total EUR 228 billion. These developments led to a smaller share of small and medium-sized companies’ loans to total outstanding loans (48.5%). The reduction in outstanding balances was a result of higher volumes of loan repayments in 2022, which could be linked somehow to the high liquidity buffers accumulated by firms during the early part of the pandemic when uncertainty was extremely high. The decline in outstanding balances was even more intense in 2023.
As regards to the maturity, short-term outstanding loans to SMEs (excluding credit to sole proprietors) continued to grow in 2022, which translated into an increase in the ratio of these total to the total ones. This made SMEs more vulnerable to the refinancing process, facing higher new lending costs and a more restrictive credit supply.
The process of reducing non-performing loans that began in 2013 has continued in the last years. Corporate non-performing loans, proxy by doubtful lending to finance the productive activity of the corporations and individual entrepreneurs, stood at 4.21% at the end of 2022, 0.8 pp lower than in 2020. This decline – which was maintained during the first half of 2023- is mainly explained by a fall in non-performing assets of around 17% (numerator). In this sense, the economic policy measures implemented during the pandemic have been important in maintaining the repayment capacity of debtors. In the case of companies, the operations guaranteed by the ICO have been important to expand credit under advantageous conditions, thus reducing impairments.
In the context of tightening financial conditions, the average interest rate on loans of less than EUR 1 million (typically associated with SME transactions) increased significantly, from 1.56% at the end of 2021 to 3.44% in December 2022. This increase was more pronounced in the case of loans to large firms (219 bp vs 188 bp). The upward trend in interest rates continued throughout 2023 for both SMEs and large enterprises.
Despite this backdrop, interest rate spreads between loans to SMEs and large corporates narrowed in 2022 compared to the previous year, from 50 bp to 20 bp. In 2023, interest rate spreads remained at similar levels to those in 2022.
According to the Bank Lending Survey (BLS), credit standards began to tighten from the last quarter of 2021, becoming more acute in the second half of 2022. This trend continued in 2023, but with less intensity. The contraction in credit supply was mainly a result of increased risk perceived by lenders, particularly related to the economic outlook and certain sectors of activity, along with a lower risk tolerance. Banks’ overall terms and conditions for new loans to SMEs also tightened. In terms of pricing, the BLS indicated that lenders widened margins on average loans and riskier loans over this period.
The BLS also shows that SMEs’ demand for bank lending started to decline in 2022 and intensified in 2023. The factors contributing most to this drop in loan demand were lower financing needs for fixed capital investment and the rise in the general level of interest rates. Similarly, the ECB’s survey on the access to finance of enterprises in the Euro Area (SAFE) revealed that SMEs’ demand for credit in 2022 and 2023 was at its lowest level since 2009, the first year of the survey.
In this context, the percentage of SMEs that applied for bank credit stood at 21.2% in 2022, just 0.9 percentage points (pp) less than the previous year, but half the share in 2020 (when there was a surge in loan demand due to financing needs to combat the economic effects of the pandemic), and significantly lower than in 2019 (33.9%). The tightening credit supply resulted in an increase in the loan rejection rate to 6.4% in 2022, only 0.5 pp higher than the previous year, but 2.5 pp above the percentage observed in 2020.
Regarding government assistance to companies, following the significant support in 2020 due the pandemic, most of the policy support started to be phased out in 2021 and continued in 2022. Direct general government financing to SMEs showed a sharp decrease in 2022, falling by 10.5% compared to the previous year, amounting to EUR 24.9 billion. However, this amount is significantly higher than the levels of government assistance reached before the health crisis.
The number of bankruptcies by non-financial corporations stood at 5 183 in 2022, which represents a rise of 8.8% compared to the previous year and an increase of 29.8% relative to 2020. This rise can largely be explained by legal reforms in insolvency procedures (the insolvency moratorium from April 2020 to June 2022 and the Spanish Bankruptcy Law, which entered into force in September 2022). The insolvency moratorium was implemented to support businesses after the COVID-19 pandemic. On the other hand, the reform of the Spanish Bankruptcy Law made a fresh start more appealing to sole proprietors and owners of small incorporated firms that had pledged personal guarantees to obtain funds for their businesses.
Ukraine guarantee line
The Spanish Government established a line of guarantees in 2022, with a maximum amount of EUR 10 billion, of which EUR 9 billion were directly managed by ICO. The aim was to provide financing to companies, mainly SMEs across all productive sectors (except for financial and insurance) affected by the economic effects of the Ukraine conflict, such as rising energy prices, raw materials or electricity. The guaranteed financing was intended to address the liquidity needs of companies, covering current expenses, working capital and investments. The first two tranches of this line, of EUR 5 billion and EUR 0.5 billion respectively, were activated in 2022, while a third tranche of EUR 3.5 billion was activated in 2023.
Spanish Recovery, Transformation and Resilience Plan
The Spanish Recovery, Transformation and Resilience Plan is part of the national plans developed by the 27 EU member states to benefit from the Next Generation EU Recovery Plan for Europe. Structured around four transversal axes aligned with EU strategic agendas, the 2030 Agenda and the United Nations Sustainable Development Goals, the plan focused on ecological transition, digital transformation, gender equality and social and territorial cohesion. These axes should guide the entire recovery process, inspiring structural reforms and investments to promote growth and business and job creation. The first phase of the Recovery, Transformation and Resilience Plan envisioned a total investment of up to EUR 140 billion, expanded to EUR 163 billion in the 2021-2026 period through an Addendum, representing more than 12% of Spain's GDP. These funds, combined with the EUR 36.7 billion of the Structural Funds of the multiannual financial framework 2021-2027 aim to modernise investments in Spain. Around EUR 10 billion of the funds allocated in 2022 within the first phase of this plan were directed to the business sector, benefiting over 150 000 firms, mainly small-sized companies.
Other schemes to provide public support for the funding of SMEs
Centro para el Desarrollo Tecnológico Industrial (CDTI, by its Spanish acronym) is a public enterprise, focusing on evaluating and financing research projects, particularly from SMEs, with high technological content. Loans are the financial instruments normally used, although the Centre also provides capital to firms through various venture capital funds. In 2022, CDTI evaluated a total of 3 513 R&D&I project proposals, supporting 1 298 R&D&I projects with a total commitment of EUR 8.9 billion, mobilising a business R&D budget of EUR 1.2 billion.
Compañía Española de Financiación del Desarrollo (COFIDES, by its Spanish acronym) and Empresa Nacional de Innovación, SA (ENISA, by its Spanish acronym), both majority-owned by the Spanish State, provide medium and long-term financing. COFIDES targets investment projects executed abroad by Spanish firms, with EUR 0.7 billion in 2022, preferably through venture capital. ENISA primarily offers financing for SME projects where innovation is crucial, mainly through loans, with an overall financing amount of around EUR 0.1 billion in 2022.
Mutual guarantee schemes (MGSs), which are financial institutions with mixed capital (provided by regional governments, credit institutions and SMEs themselves), grant guarantees that cover, at least partially, the risks implicit in lending transactions. They have a marked regional and sectorial scope, and their activity is usually linked to a region. In 2022, they granted guarantees totaling EUR 2.3 billion, a 16% increase from 2021. A significant part of the risk assumed by MGSs is usually transferred to Compañía Española de Reafianzamiento, SA (CERSA, by its Spanish acronym).
In insurance, Compañía Española de Seguros de Crédito a la Exportación (CESCE, by its Spanish acronym) manages export credit risk on behalf of the State, with the majority of its capital publicly owned. The volume of export credit insurance policies reached EUR 182 million in 2022.
Legal reforms in insolvency procedures
The insolvency moratorium implemented to support businesses after the COVID-19 pandemic (in force since April 2020), ended on 30 June 2022.
The reform of the Spanish Bankruptcy Law entered into force on September 26, 2022. It enables a fresh start more appealing to sole proprietors and owners of small incorporated firms that had pledged personal guarantees to obtain funds for their businesses. In particular, the new procedure has two alternative avenues, a liquidation of the debtor’s non-exempt assets without an additional repayment plan (like Chapter 7 in the US) and a repayment plan without the liquidation of the debtor’s non-exempt assets (like Chapter 11 in the US). The repayment plan has been shortened from 5 to 3 years, and it can only go up to 5 years when it involves that the debtor will keep the family home. Public credit may be discharged up to a limit of €10,000 both for taxes and Social Security contributions (full discharge up to €5,000 and 50% discharge between €5,000 and €10,000). The pre-requisites for opting into the fresh start have been somewhat simplified and made less subjective.1
Source: See Table 40.2.
References
Álvarez, L., Alvés, P. and Delgado, J. (2022), “Recent developments in financing and bank lending to the non-financial private sector. First half of 2022”, Banco de España.
https://www.bde.es/wbe/en/publicaciones/publicaciones-discontinuadas/articulos-analiticos/evolucion-reciente-financiacion-y-credito-bancario-al-sector-privado-no-financiero--primer-semestre-2022.html
Banco de España (2023). Annual Report 2022
https://www.bde.es/f/webbe/SES/Secciones/Publicaciones/PublicacionesAnuales/InformesAnuales/22/Files/InfAnual_2022_En.pdf
European Central Bank (2022). Survey on the Access to Finance of Enterprises in the euro area - October 2021 to March 2022.
https://www.ecb.europa.eu/stats/ecb_surveys/safe/html/ecb.safe2021H2~bba4474fd3.en.html
European Central Bank (2022). Survey on the Access to Finance of Enterprises in the euro area - April to September 2022.
https://www.ecb.europa.eu/stats/ecb_surveys/safe/html/ecb.safe202212~6bc3312ea1.en.html
European Central Bank (2023). Survey on the Access to Finance of Enterprises in the euro area - October 2022 to March 2023
https://www.ecb.europa.eu/stats/ecb_surveys/safe/html/ecb.safe202306~58c0da48d6.en.html
Menéndez, A. and Mulino, M. (2022), “January 2022 Bank Lending Survey in Spain”, Banco de España.
https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRevistas/ArticulosAnaliticos/22/T1/Files/be2201-art04e.pdf
Menéndez, A. and Mulino, M. (2022), “April 2022 Bank Lending Survey in Spain”, Banco de España.
https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRevistas/ArticulosAnaliticos/22/T2/Files/be2202-art07e.pdf
Menéndez, A. and Mulino, M. (2022), “July 2022 Bank Lending Survey in Spain”, Banco de España.
https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRevistas/ArticulosAnaliticos/22/T3/Files/be2203-art19e.pdf
Menéndez, A. and Mulino, M. (2022), “October 2022 Bank Lending Survey in Spain”, Banco de España.
https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRevistas/ArticulosAnaliticos/22/T4/Files/be2204-art29e.pdf
Note
← 1. In particular, two conditions for eligibility have been removed: (i) the debtor has previously attempted to reach an out-of-court payment agreement (acuerdo extrajudicial de pagos); (ii) the debtor has not rejected an offer of employment in accordance with her abilities in the four years prior to the bankruptcy filing.