Exploring the impact of loans on credit risk management in Spanish systemic banks

Abstract

This research analyses the solvency behaviour of systemic Spanish banks, focusing on their credit risk management during the subprime mortgage crisis and the Covid-19 pandemic. The top three Spanish banks (BBVA, Banco Santander, and Caixabank) were selected as a representative sample. Key indicators such as the volume of assets, amount of financing or loans to clients, NPL (non-performing loan) ratio, reported volume of write-offs, equity, and share capital were analysed to assess their solvency and credit risk management. Furthermore, from the variables evaluated, a structural equation model has been proposed to evaluate the structural relationships among the variables. The results indicate a significant reorganization of these institutions after the subprime crisis. This reorganization was crucial for providing the necessary room for manoeuvre to overcome the challenges posed by the Covid-19 crisis. However, the study highlights the importance of implementing preventive management policies to handle future crises effectively. This study provides valuable insights into the solvency and credit risk management of systemic Spanish banks during two major financial crises. The evidence presented is particularly relevant for bank managers and policymakers, offering guidance on effective credit risk treatment and crisis management strategies.