Research Dept. News
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Monthly Report, num 330 - December 2009
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Spain: overall analysis - Savings and financing
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Adjustments continue to be made in household accounts
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One-year Euribor hits record low monthly average for the eighth consecutive time in October.
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In October, the one-year Euribor, widely used as a reference rate, set a new record low for its monthly average when it reached 1.24%, 401 basis points below the figure twelve months earlier. In the first few weeks of November, the one-year Euribor continued to slide, by the middle of the month reaching the minimum rate of 1.22%. This downward trend in the Euribor over the last year reflects the successive cuts in the official European Central Bank interest rate due to the worldwide economic and financial crisis, but is also due to the reduction in interbank risk premium as market conditions start to get back to normal.
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Interest rates on loans by financial institutions have also fallen in the last period, with the average interest rate for bank asset transactions standing at 3.55% in September, 301 basis points below the same month in 2008. This fall could have been greater had it not been for the rise in risk premium, the result of bad debt picking up sharply due to the economic situation.
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In spite of nominal cuts in interest rates, demand for funding in the private sector is still weak, within a situation of shrinking consumption and investment. For its part, the supply of credit has adapted its financing conditions to the situation, in line with prudent risk management. Consequently, financing for firms and households continued to slow down and only recorded a year-on-year increase of 0.4% in September, a little less than the euro area as a whole.
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Corporate bond issues soar.
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Funding granted to non-financial companies was higher than that of households but still only rose very slightly, by 0.7% compared with September 2008. The improved conditions in capital markets and lower interest rates over the last period led to a notable increase in the use of bond issues, with a year-on-year rise of 26.6%, although their share in corporate funding overall was modest, less than 4%. For their part, foreign loans were up 5.6% over the last twelve months.
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The trend in commercial credit, used to finance the working capital of firms, with an annual drop of 32.8%, reflects the reduction in economic activity over the last year, while the 16.3% year-on-year decrease in financial leasing reveals the meagre demand for investment. However, these falls are a little less than those seen in the preceding month.
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Drop in family financing over the last twelve months.
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Households recorded a moderate positive effective flow of funding in September, although slightly below that of a year earlier. Most private financing is aimed at housing and this continued to slow up, resulting in a year-on-year increase of just 0.2%, while the remaining loans for consumption and other purposes showed a year-on-year decrease of 0.9%. Consequently, adjustments continue in household debt, which had reached high levels before the crisis and is still slightly above the average for the euro area.
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Hiatus for bad debt in September.
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For its part, bad debt took a break in September and held steady at 4.9%. This rate is 2.2 percentage points higher compared with the same month last year and has led to strong growth in financial institutions' provisions.
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With regard to general government financing, this has seen big growth, with a year-on-year rise of 34.4% at the end of the third quarter. However, it only partially offset private sector deleveraging, so that the financing of non-financial sectors continued to slow up, recording a year-on-year variation of 4.5%, 3.6 points less than in September 2008.
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Resurgence of mutual funds
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In an environment that is still recessive, and with the improvement in the wholesale financing conditions of financial institutions, the private sector's urgency to obtain deposits has eased off. Within this context, deposits of firms and households continued to calm down in September, also influenced by the drop in yields and competition from rival products. Consequently, in the last twelve months, private sector deposits grew by 4.2%, one percentage point less than in August.
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However, savings deposits continued to accelerate, with an annual rise of 13.0%, showing the preference of households for liquidity given the uncertain economic situation and rising unemployment. Meanwhile, foreign currency deposits fell by 37.7% in the last few months, affected by the unfavourable difference in interest rates and the adverse trend in exchange rates.
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Slowdown in private sector deposits but savings deposits speed up.
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Less competition in deposits and good performance on the part of financial markets helped to reactivate mutual funds in October, with the number of participants standing at 5,702,235, a monthly increase of 0.3%, the first since May 2007. Net subscriptions for the month totalled 551 million euros, the highest monthly total in two and a half years. There also seemed to be less aversion to risk, with significant net withdrawals from money market and guaranteed funds. Hedge funds also recorded net inflows.
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Average annual yield for mutual funds reaches 4%.
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The average yield for mutual funds in the last twelve months stood at 3.95%, greatly exceeding inflation. Particularly of note are the returns from emerging market equity, namely 39.5%, and from domestic equity, 26.5%. Consequently, mutual fund assets rose by 341 million euros in October, up to 162,857, although these assets have fallen by 6.6% over the last twelve months.
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On the other hand, pension funds continued to recover in the third quarter. Total assets rose by 4.6% quarter-on-quarter, up to 82,161 million euros. This figure represents 2.4% growth compared with a year before. Net contributions from the third quarter came to 260 million euros, while the number of participant accounts increased by 0.6% in the last twelve months, bringing the estimated number of participants to around eight million.
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By category, assets from the individual system were up 2.3% over the last twelve months, totalling 51,038 million euros, whereas assets from the employment system rose by 2.9% in the last year, to 30,125 million euros. For its part, the associated system, used by organizations such as trade unions and professional colleges, reached 997 million euros. The average annual yield for all plans stood at 3.3%. Over the last nineteen years, the average yield has been 5.5%, above the inflation rate for the period.
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