Late payment is defined as the slowness, delay or delay in fulfilling a commitment within the previously established time frame.
If we take them to banking terms we speak of bank delinquency, which is an indicator of the level of risk that debtors of private banks do not meet their payment obligations. As a debtor, we refer to that natural person who requests a loan or credit.
According to the Bank of Spain, in the month of May 2020, the volume of doubtful loans totaled 58,080 million euros, which placed the bank delinquency rate at 4.7% of the total credit granted.
What is delinquency?
The delinquency of a credit or a loan, according to the Bank of Spain, is considered doubtful credits to those who present reasonable doubts about their total reimbursement (principal and interests) in the contractually agreed terms. These include non-performing loans, which are those that have an overdue amount, either the principal, or the interests or expenses contractually agreed, with more than three months old.
How is the delinquency rate calculated?
In the banking sector, the delinquency index or ratio measures the volume of credits considered delinquent over the total number of loan and credit operations granted by a financial institution.
The delinquency rate of a loan or credit is measured as the quotient between delinquent credits and the total of credits granted to clients.
Bank delinquency rate (%) = Bad credit / Total credit
Banco de España collects the total volume of credit granted by financial institutions and the part that corresponds to doubtful credit. From there you can get the bank delinquency rate .
Effects of delinquency
The effects of bank delinquencies not only affect the financial sector but also the productive sector. It damages the whole of the entire economy of a country.
A high delinquency rate contracts bank financing and makes it more expensive, raising interest rates and commissions. In other words, the banks compensate with these measures to absorb the risks of defaulting or insolvent clients.