Corporate credit quality during the health crisis and the recent monetary tightening cycle

Abstract

This article analyses corporate credit quality in Spain at the sectoral level during two key episodes: the health crisis triggered by the COVID-19 pandemic and the monetary tightening that began in summer 2022 in the euro area. During the health crisis, stage 2 loans increased significantly. A small part of that rise later eased as interest rates began to climb. The impact of the health crisis on non-performing loans was much lower, partly because of the measures implemented to mitigate its effect, particularly loans backed by the Official Credit Institute. It can be seen that sectoral activity is closely correlated with credit quality. This relationship was more relevant during the health crisis than during the monetary tightening period. Indeed, the decline in sales was a key factor behind the deterioration in corporate credit quality (especially in the case of stage 2 loans) during the pandemic. However, during the subsequent recovery other factors played a larger role.