Banks are cutting back lending to businesses in the Balearics, but tourism and agriculture may get off lightly

New loans made by banks to businesses in the Balearics have registered a decline of approximately 15% over the last year, according to data provided by financial institutions to the newspaper Diario de Mallorca. These cuts are especially intense in some areas, such as real estate, the automotive sector and textiles, the figures show.

Entrepreneurs and business people are worried that these funding problems may lead to the complete closure of their businesses. The president of the association of promoters in the Balearics, Gabriel Oliver, said that financial institutions are proving flexible when it comes to renegotiate existing debts with businesses and families, extending deadlines for fund repayments. But what they are not doing is lending for new ventures – and the problem is that it is the latter that generates new jobs.

The Diario de Mallorca reports the financial institutions it consulted agreed that the loans for new business projects were being limited, with declines of up to 50% being reported in some cases. However, some justified the extent of this reduction, emphasizing that in many cases it is the business owners themselves who have drastically lowered the initiatives put in place “Because they are aware that there is actually no demand,” says Gabriel Oliver.

An additional effect that needs to be factored in is that, at the same time businesses are drawing back the scope of new projects, banks and financial institutions are trying to increase their margins.

Banks and cajas (socially-tied financial institutions) deny that there is a ‘veto’ in the granting of loans to real estate and automotive companies, but acknowledge that in valuing the securities they offer, the result is much more negative than that of other sectors.

However, these entities derive their profitability by charging commission on services provided. Competition will now likely be directed towards more ‘basic’ activities considered to be basic necessities, such as tourism and food. Given the Balearics’ reliance on these two sectors it is perhaps heartening that banks and financial institutions are still willing to finance them. (jh)