Degradation of tourist loans could be a hot spot for Spanish banks
As coronaviruses restrict ground planes and shuttered hotels, Spain – a global tourist destination – suffers from a drop in visitor numbers, cutting vital revenues for small and medium businesses linked to tourism. And since SMEs are the bread and butter of many Spanish banks, lenders face an increase in nonperforming loans linked to tourism.
The protracted nature of the crisis means that a “normal” tourist season will be unlikely in 2021, putting additional pressure on the sector, in particular on SMEs. Banks such as Banco de Sabadell SA, CaixaBank SA and Bankia SA are particularly exposed in popular tourist spots such as Barcelona and the Canary and Balearic Islands, Albert Banal-Estanol, associate professor in the department of economics and commerce of the Universitat Pompeu Fabra in Barcelona, said in an interview.
S&P Global Market Intelligence data shows Sabadell was the most exposed to accommodation and food services among Spanish banks, with 8.01% of loans at the end of 2019, and its exposure in the event of default – the total of a bank exposure when a borrower fails to repay their loan – tourism, hospitality and leisure amounted to € 6.6 billion at the end of the third quarter of 2020.
Almost 6% of CaixaBank’s loans were for accommodation and food services at the end of 2019 and it had € 9 billion in defaulted tourism and leisure exposure as of September 30, 2020.
Bankia’s loans to accommodation and food services amounted to 4.85% of total loans at the end of 2019, while Banco Bilbao Vizcaya Argentaria SA’s exposure was 5.01% and it had 11 , 25 billion euros of defaulted exposure in the leisure sector, including hotels, restaurants and travel agencies. and the game.
The country’s largest bank, Banco Santander SA, which also has a strong international presence, held 3.59% of total loans to the accommodation and food sector at the end of 2019, and its provisions nearly doubled in Spain during the nine months to the end of September, largely thanks to SME loans. The duration of the pandemic will be critical given the “important role” tourism plays in the Spanish economy, CEO José Antonio Alvarez said during a third quarter earnings call.
And it is not only credit that is affected by the sharp drop in the number of tourists. CaixaBank CFO Javier Pano Riera said on a third quarter earnings conference call that the bank’s fees fell 2.7% year-on-year in the nine months leading up to the end of September, because its payment activities were affected by a “weaker tourist season”.
Tourism represents 12.3% of Spain’s GDP and the French National Statistics Office, INSEE, ranked the country in second place for 2018 international tourism revenues totaling 62.5 billion euros, behind the United States and ahead of France. And with the industry virtually shut down, the impact for banks could be significant.
Rising unemployment in the tourism sector could mean it would be difficult for borrowers to pay off their mortgages. According to the National Statistics Office of Spain, 2.62 million people, or 12.7% of the working population, are employed in tourism, while data from the Bank of Spain show that 19.4% of mortgage holidays were granted to borrowers employed in accommodation and food services as of October 31.
Hotel stays around the country fell to virtually nothing in April. They rebounded in July to 11.5 million, but this is still a fraction of the 43.2 million overnight stays recorded a year ago, the statistics office said.
“It is not only tourism but it is all activities linked to tourism (…) which are also greatly affected by the pandemic,” said Banal-Estanol. “Art, entertainment, all of that is really important in Spain. It’s a big part of the GDP that is added to tourism.”
Tourism – or the lack of it – has a knock-on effect on other sectors. Eduardo Santander, executive director of the Brussels-based European Travel Commission, estimated that one euro of value generated by tourism translates into an additional 56 cents of indirect added value in other industries.
As the coronavirus outbreak unfolded in Spain, the government responded with € 100 billion in March, and then an additional € 40 billion in July in the form of state-guaranteed loans. The government on November 17 expanded loan maturities and grace periods.
At the end of July, 14.45 billion euros in loans guaranteed by the government had been granted to the tourism sector, according to the Spanish Ministry of Industry, Trade and Tourism. Spain has the highest use of loan guarantee programs compared to other major European economies, with 98% of loans going to SMEs and the self-employed, the IMF said.
Banal-Estanol said he fears an increase in bankruptcies, which in turn will lead to an increase in non-performing loans once the grace periods end.
“We don’t feel the pain yet,” he said.
According to data compiled by S&P Global Market Intelligence, NPLs related to accommodation and food services reached 4.45% in Spain in the second quarter, compared to 4.22% in the first quarter.
Pablo Manzano, vice president of global financial institutions at DBRS Morningstar, said it was difficult to quantify banks’ total exposure to tourism-related companies, as it can include real estate, for example through hotel developments, and transportation.
“We still don’t know the effects of the first wave due to all the regulatory exemptions on how [banks] need to declare NPLs, due to their moratoriums, [and] because of the state guaranteed loans, it is therefore impossible to assess the current damage to their balance sheets, ”he said.
However, Manzano said, the crisis is expected to have a significant impact on Spanish banks as support measures wane, with the impact becoming clearer by the second quarter of 2021.