The Bank of Spain warns of a rebound of dubious credit in the commercial sector when the mortatories are finished

The Bank of Spain has warned that the future lifting of support measures approved by the Government for businesses within the framework of the crisis of the Coronavirus could lead to an increase in the volume of doubtful credit.

In a report, the supervisor finds the reduced effect that the pandemic has had used until now the quality of the credits granted to the commercial real estate sector thanks to the guarantee programs or to the moratoria, segment that accumulated 9 million euros in the first quarter
of 2021.

The Bank of Spain, further, that in mortgages on commercial real estate the debtor is on many occasions a legal entity with limited liability, so the risk of these operations could be higher than that associated with mortgages on housing.

In the latter, in case of default, the Bank has the appeal not only to the loan collateral (housing), but also the equity of the accredited.
It should also be borne in mind that the fall of the value of buildings reduces the recovery value of these loans in case of default.

The new credit destined to the commercial real estate market fell 36% by 2020, although not as much as the amount of purchases, which indicates an increase in new refinancing operations to alleviate the liquidity needs of the accredited.

However, this alteration in the ratio between credit granting and level of shopping, typical in times of recession, was more than twice higher in the last great financial crisis, 2008. In fact, the report states that the impact of
The COVID-19 crisis in the credit quality of these portfolios “seems content”, since the volume of loans without credit deterioration but in which a significant increase in credit risk is barely reached 0.7% of all
Exposure at the end of the first quarter of 2021.

The Bank of Spain has been studying in this report all kinds of commercial real estate assets, such as offices, industrial buildings, logistics centers and shops.
In general, it points out that the growth of electronic commerce, which requires the development of well-distributed logistics centers geographically, could have cushioned the impact of the crisis in this type of establishment.

On the contrary, the greatest resort on teleworking as a measure to avoid the propagation of the pandemic could have reduced the demand for offices surfaces, which would explain the greatest relative drop in the number of transactions in this subsegment.