An analysis of the situation of lending in Spain

In heavily banked economies like Spain’s, bank lending to firms and households plays an important role in the country’s economic development. In general, bank lending and GDP tend to move in tandem (although the former lags somewhat behind the latter) as a result of a number of forces that act in one direction or the other. The contraction in lending to the private sector in Spain since 2009, against the backdrop of a double-dip recession, is another example of this correlation. In these circumstances, it is useful to have a diagnosis of the situation that enables the main factors underlying the observed behaviour of lending to be identified and, in particular, that ascertains whether there are frictions or market failures that may be hampering private-sector access to financing and, consequently, economic recovery. Following this introduction, this article analyses the determinants of recent developments in lending, confirming the importance that demand factors have had, along with the presence of certain supply-side constraints, which primarily affect SMEs. On the basis of this diagnosis, the third section of the article briefly reviews the instruments used in Spain and in other countries to stimulate lending to SMEs, helping to identify, in the fourth section, measures that would be worth exploring to improve the access of small firms to bank financing. The final section summarises the main conclusions.