Published on Monday, May 31, 2021

Spain | Corporate debt in the time of COVID-19

Spanish companies are facing the invisible attack of COVID-19 from a position of relative strength after experiencing strong deleveraging over the past decade due to the Global Financial Crisis, which led them to lower their debt from levels of more than 110% of GDP (2008) to 73% (2019).

Key points

  • Key points:
  • However, the outbreak of the pandemic has led to an increase in this debt, to 85% of GDP at the end of 2020, in line with the Eurozone, due to the largest liquidity needs of the companies.
  • Although the hospitality, trade and transportation sectors have been most severely impacted by restrictions aimed at reducing the incidence of COVID-19, they started in a favorable position from a debt perspective.
  • Another point to note is the soundness of Spanish banks in terms of solvency and liquidity, which allows them to contribute to the mitigation of the impact of the pandemic. Fortunately, banking loans to companies rose for the first time in 2020 after a long deleveraging period, with larger increases registered in COVID-19 sectors, mainly hospitality and transportation.
  • Spain has channeled a large proportion of its state aid through public debt guarantee schemes—so-called ICO loans, which are mainly focused on the sectors with the greatest difficulties and SMEs—and through grace periods of up to 24 months.
  • However, Spanish companies have had less government support for their corporate equity and have also had to endure high losses, which may drive some companies to excessive indebtedness and difficulties for their survival.

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