At end2021 they accounted for 5% of total outstanding loans, the same percentage as prior to the pandemic. 5  Pursuant to Circular 4/2017, a loan is classified as a Stage 2 exposure when credit risk has increased significantly since initial recognition, even if no event of default has occurred. 6  Forborne loans are also typically associated with possible repayment difficulties for borrowers; indeed, more than half are classified as non-performing. 8  In any event, the developments in Stage 2 and forborne loans were encouraging in 2022 Q1: the former’s year-on-year growth was negative (-2.2%) while the latter’s slowed to 8.8%. Vulnerability is most acute among the sectors sensitive both to the effects of the pandemic and to the rising energy costs. In particular, the combined share of NPLs and Stage 2 loans in the sectors most severely affected by the pandemic stood at almost 24% at December 2021, compared with 17.7% in the moderately affected sectors and 15.5% in those least affected. These shares held stable during 2022 Q1. The credit quality of loans backed by the State through the Official Credit Institute (ICO) has deteriorated somewhat in recent quarters. At March 2022, 22.7% of ICObacked loans were classified as Stage 2 exposures (up 6.4 pp on June 2021) and 4.1% as NPLs (up 2 pp on June 2021). Further, it must be noted that a significant share of these loans continue to benefit from grace periods, which will come to an end in summer 2022.
Based on the latest microeconomic information available,17 it is estimated that the increase in interest rates since the start of this year (of 1.6 pp for the 12-month EURIBOR,18 the main interest rate to which the stock of mortgages in Spain is linked) will lead to a rise of almost 2 pp in the proportion of households with a high net interest burden.19 This effect would be most pronounced among indebted households between the 20th and 40th percentiles of the income distribution.20  17  This exercise was conducted drawing on information from the 2017 Spanish Survey of Household Finances (EFF by its Spanish abbreviation). The latest Financial Stability Report includes the results of the exercise for various interest rate hike scenarios. It was found that the proportion of households with a high net interest burden would rise by 1.2 pp, 2.3 pp and 3.9 pp, respectively, if interest rates were raised by 100 bp, 200 bp and 300 bp. 18  The 12-month EURIBOR has risen from -0.501% at 31 December 2021 to 1.091% at 20 June 2022. 19  The net interest burden is considered to be high when the ratio of (debt service expenses - interest income from deposits) to household income is over 40%.