Spanish household financial debt similar levels to 2007

Household financial debt amounted to 798.045 million euros at the end of last September, an amount similar to that recorded in February 2007, according to data from the Bank of Spain, which is the measurement process of deleveraging ( debt reduction ) of households and firms.

This balance represents a decrease of 0.58 % from the previous month ( the household debt in August stood at 802.707 million ) and 5.08% in September 2012, when accumulated payment commitments amounted to 840.759 million. That is, no new loans are granted or the volume is less than the outstanding payments.

The balance of the mortgage debts of households and non-profit institutions serving households (NPISHs ) stood at 618.579 million euros , a level not seen since May 2007.

Family Debt levels are similar to 2007
Family debt levels are similar to 2007

The amount of mortgage loans representing a decrease of 0.36 % compared to August ( 620.795.000 million ) and 4.54 % over September last year ( 648.026.000 million ).

The outstanding September consumer credit reached 176.413 million euros , a figure not seen since March 2006. Lowering the amount of consumer loans by 1.38% over last August ( 178,880 million) and 7.11% compared to September 2012 ( 189.911.000 ) .

The corporate debt fell by 10.98 % year on year. The corporate debt also fell in September from the previous month , slightly less than 3,000 million euros , or 0.27 %, to 1.08 million.

In the last twelve months, between last September and December of 2012 – the reduction in the amount of credit made available to Spanish companies fell by 133.249 million euros, 10.98% . Both domestic loans and the financing obtained from abroad by companies fell when compared monthly and year on year.

Thus, loans to entities, resident non-financial corporations stood at 670.596 million last September, a figure that implies a fall of 0.35% over August ( 672 976 000 ) and 15.37 % over September 2012 ( 792,423,000,000 ).

Businesses enjoyed a foreign credit balance of 328.344 million at the end of September, 0.26% less than in August ( 329,200 million) and 5.54 % lower than in September 2012 ( 347 619 million ).

Euroland sovereign debt update

The Euro shambles continues
The Euro shambles continues

The ongoing shambles of Euroland sovereign debt and politics has festered for another month with no fresh sign of resolution. In Britain David Cameron and his cabinet colleagues have taken it in turn to make embarrassing revelations to the Levy inquiry, unsupported by their LibDem coalition colleagues. Little kudos has accrued to either side, as reflected by the lack of change in sterling’s value against the euro. The last month has seen the pound wander back and forth across a two-and-a-half-cent range that has led nowhere. The euro is very slightly weaker than it was before the first abortive Greek election six weeks ago but the difference is minimal.

At the beginning of June the Bank of England’s Monetary Policy Committee decided to keep the Bank Rate steady at 0.5% and to refrain from any new quantitative easing – “printing money” as the tabloids would put it. The minutes of the meeting, published a fortnight later, showed how close a call it was. Four of the nine members – including the governor himself – wanted to increase the asset purchase programme beyond the 325 billion of government bonds already in the scheme.

Investors were surprised by the narrow majority and concluded that it might be no more than a couple of weeks before the Bank rolls out the next phase of its monetary stimulus. That anticipation was reinforced by data the previous day showing that UK inflation had fallen back into its 1%-3% target range in May. It was the first time in two and a half years that consumer prices index inflation had been below 3%. It is possible that the Bank of England governor had such numbers in mind the previous week when he announced, together with the chancellor, a new scheme to feed low-cost money to the country’s banks, conditional on them making cheap loans to individuals and small businesses.

The central banks of Spain and Italy are green with envy at the low borrowing costs enjoyed by Germany and Britain. For its five-year loans Britain pays roughly 0.7% and Germany pays 0.6%. Investors charge Italy 5.5% and Spain 6.4% for the same privilege. Proportionally the difference is enormous and it exists because lenders fear Spain and Italy could go the same way as Greece, defaulting on their obligations and leaving private sector investors in the lurch.

The EU is trying to dispel this fear and, by doing so, to make it more affordable for Spain and Italy to borrow the money they need. But so far they are fighting a losing battle. Brussels’ approval of a €100bn bailout for Spain in mid-June simply drew attention to the country’s troubled banks and raised the question of how much more support it might need further down the line.

In Greece the New Democracy party has managed to form a three-way coalition after the second general election in six weeks but the new government is almost certain to approach Brussels – and Berlin – with a request for an easing of the onerous austerity imposed as a condition of its financial bailout.

At the G20 conference in Mexico there were heartening rumours that Germany would subscribe to a €600bn (or €750bn, depending on the source) support fund for Spanish and Italian government bonds. Much as investors liked the concept, they have yet to hear any confirmation from the most important player; Chancellor Merkel.

So investors don’t like the eternal disarray in Euroland and the recycling of old pledges and reassurances. Equally importantly, they are nervous about the prospect of a further dilution of Britain’s currency and the close relationship of the UK and Euroland economies.

Paradoxically, the failed Greek election in early May marked the end of sterling’s ten-month rally. Since then it has made zero forward progress against the euro. Without some new and major development – on either side – the impasse is likely to continue.


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New Measures Needed to Tackle Mortgage Default Problems

Spaniards are struggling with their mortgages
100,000 families at risk of defaulting

Based on findings from a study on the impact of mortgage arrears, carried out by the Association of People Affected by Foreclosures and Auctions (AFES), the organisation has warned that 100,000 families are in danger of not paying their mortgage in the next two years due to rising unemployment.

The report reveals that 135,000 families are currently undergoing foreclosure proceedings, while 150,000 families have already lost their homes and a further 130,000 families are unable to pay their mortgage.

The AFES has warned that the “ever-widening gap” between banks and citizens “is strangling economic growth in Spain”. The organisation recognises that the banks are trying to adapt to the conditions of the debtor in order to avoid them getting into a default situation, “but the situation changes with families which are already in this process.”

According to El Economista, the president of the association, Carlos Baños, said that “undoubtedly the change of government will bring new measures in relation to mortgage arrears.” Baños went on to say that he hoped that the measures put in place to the fight against the struggling economy will open a debate over foreclosure proceedings, and that they will seek “alternative and negotiable” measures between the banks and their customers.

“We believe that the financial institutions are the ones who must take the lead in order to initiate a change of mindset, promoted by policy measures that build confidence in the system, and allowing them flexibility in mortgage default management”, stressed the AFES president.

The Association highlighted that the housing market recovery is one of the “major” challenges of the Government, “and will not be an easy task, because the outlook is complicated.”

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Spain on negative outlook

Credit ratings agency, Moody’s, have maintained the A3 bond rating for Spain, it said in a statement.

However, the country is under negative outlook due to the challenge of it’s budget constraints, which suggests that further fiscal adjustments will be required this year. This is despite Prime Minister Mariano Rajoy successfully reducing the country’s deficit target.

“The easier targets do not affect the country’s A3 government bond rating with negative outlook because Moody’s had already incorporated a likely deviation from original fiscal targets and a slower pace of fiscal consolidation into its analysis,” the statement said.

“While the revised fiscal target for 2012 is more realistic than the previous one, Moody’s believes that the Spanish government will still need to implement a substantial fiscal adjustment this year,”

The agency also suggested that “profound structural reforms” must be put in place in Spain’s autonomous regions to guarantee the country can meet it’s targets

Last Friday, Bank of Spain figures showed the country’s public debt had increased dramatically to 68.5% of GDP, the highest for 16 years, and 8.5 points over the 60% target agreed with the European Union.

However, a caveat must be added here as various opinions say that Spain’s debt-to-GDP ratio is massively understated because it does not include the debt’s of the autonomous regions, nor government guaranteed bank debts.

Debt collection practices investigated

debt collector
Debt collectors can be very intimidating

Debt collectors, or bailiffs, have often been accused of illegal tactics in England and the emergence and exponential growth of pay-day-loan services is likely to bring more unethical lenders to our attention.

Here in Spain it seems the same thing is happening and the Andalusian Ombudsman, José Chamizo, has petitioned the high court of Andalusia to intervene in order to “curb abusive practices of debt collection companies.”

The court opened proceedings following receipt of a letter from Sr. Chamizo in which the ombudsman says that this sector has been “receiving more and more complaints from citizens denouncing the actions of certain collection companies whose practices appear to exceed the limits of what is acceptable and in some cases borders on what could be considered criminal behaviour.”

He explained that when a debt remains unpaid for extended periods it is often passed to a firm specifically dedicated to the activity of collecting debts and these companies have proliferated greatly during the crisis. Although their business is legal Sr. Chamizo said that “lately, perhaps because of increased competition between these companies or increasing difficulty in collecting arising from the severity of the crisis, there has been a noticeable hardening in the practices of these companies.”

In his letter Chamizo explained that people have reported receiving “incessant” calls, not only during the day but in many cases during the night. Such calls often include threats and insults regardless of who answers the call.

“There has also been several reported cases in which calls or visits have been made to third parties unrelated to the debt, including neighbours and relatives of the debtor”, Chamizo added.  This is a violation of the rules of data protection.

Many of the complaints received never get dealt with and denouncing the companies if often ineffective in stopping the intimidation, which continues until the debt is repaid, prompting Chamizo to request the investigation into the sectors practices.

Mijas properties to be seized

Mijas Town Hall
Mijas Town Hall

The authorities in Mijas town hall have announced plans to seize the real-estate holdings of people within the town that have failed to pay local taxes and fees.

The embargoes are aimed at people who have repeatedly ignored requests for payment, officials said.

Over 2,000 properties are facing the embargo including homes, business premises and garage spaces.  “There are more than 2,000 properties in this situation in Mijas,” said the town hall in a written statement.  Affected owners have been notified of the pending seizure.

“We don’t like these types of measures but we must guarantee the provision of municipal public services,” said the councillor for the economy and taxes, Mario Bravo.

Bravo also added that the affected owners “still have time to avoid the embargoes” by paying their debts.

Spain loses AA+ credit rating

On Friday Fitch downgraded sovereign debt ratings for Spain from AA+ to AA- due to the worsening debt crisis in the euro zone.

Juan Garcia, director of structured finance ratings, said they also have continuing concern over the real estate sector in Spain adding “Currently, we monitor the volume of loans for real estate deals and the market pricing in order to include the latest data in the review on the ratings of the country”,

In response to Fitch’s downgrade Russian presidential aide, Arkady Dvorkovich, told journalists that Russia would consider buying sovereign debt to help Spain out of its debt crisis.

Dvorkovich said the option for Russia to buy Spanish debt had been discussed, stating “Russia’s former finance minister, Alexei Kudrin and Russia’s foreign minister, Sergei Lavrov met with Ms Elena Salgado, economic and finance minister of Spain. They discussed that question,”. He added that any agreement would depend on Spain having a clear strategy for a sustainable recovery.

“We are waiting for European countries to announce specific, understandable strategy to get out of crisis. If in the context of this strategy Russia’s and other BRIC countries’ support is necessary, we are prepared to provide that support,”

Zapatero Concerned With GDP Forecast

Spanish Prime Minister Jose Luis Zapatero has said that although the government’s official figures for GDP growth this year stand at 1.3 percent, “We are going through a period of financial tension and economic uncertainty, particularly because of the situation in Greece, which could affect these forecasts.”

He went on to say that growth was likely in the third quarter but at a pace similar to the previous three months. Quarterly growth in the Spain slowed to 0.2% in the period April-June and to 0.4% in the first three months of the year.

José Manuel Campa, the secretary of state for the economy, said the state of the global economy would make it “more difficult” for Spains economy to grow 1.3 percent this year.

According to El Pais, the latest upsurge in the euro-zone debt crisis has pushed Spanish government bond yields higher making it more costly for local banks to tap the international wholesale markets to meet their liquidity requirements.

Tighter liquidity conditions for local banks could in turn reduce the amount of credit they can grant, which further restricts economic growth.