NPL&REO News

Bank of Spain predicts economy to shrink up to 12.4% this year

Spain’s economy could shrink as much as 12.4% this year if its coronavirus lockdown lasts 12 weeks, before staging a vigorous recovery of at least 5.5% in 2021, the Bank of Spain said 

The Spanish central bank said the disruption suffered by the economy was, as in other countries, of «considerable severity», although there was still great uncertainty as it charted various scenarios depending on the length of the lockdown.

Its best-case scenario, based on the assumption that measures to prevent mass closure of businesses and lasting unemployment work out and the lockdown that began in mid-March lasts eight weeks, pointed to a 6.8% contraction.

The central bank said that tourism, which accounts for around 12% of Spain’s gross domestic product and 13.5% of all employment, would be particularly hard-hit by the pandemic.

«The high contribution of tourism to GDP and employment, in a context where these sectors are suffering disproportionately from the consequences of the pandemic, contributes to the fact that the prospects of the Spanish economy have been particularly affected,» it said.

If companies’ liquidity shortages turn into solvency problems in an eight-week lockdown, which the central bank saw as the most probable outcome, the Spanish economy could contract 9.5% this year, or 12.4% if the lockdown lasted 12 weeks.

In its worst-case scenario, it expected the unemployment rate to hit 21.7% this year, easing to 19.9% in 2021.

According to the International Monetary Fund, the euro zone economies should contract by 7.5% in 2020, forecasting an 8% contraction in Spain.

The Bank of Spain said that, in any case, an upturn was expected to begin in the second half of the year, leading to a «remarkable recovery» in 2021, with a projected growth of between 5.5% and 8.5%.

The central bank also predicted a budget deficit of between 7.2% and 11% of gross domestic product in 2020, improving to 5.2%-7.4% of GDP the following year. It said Spain’s debt-to-GDP ratio would rise to 122.3% in 2020 in the worst-case scenario.

Original Story: The Guardian| Jesus Aguado and Emma Pinedo (Reuters)| 
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Edition:
Prime Yield

Banks will have to suspend payroll loan payments for 4 months

A Brazilian federal judge ordered banks to suspend all payments due on payroll loans extended to retirees for four months, citing increased medical expenses due to the coronavirus pandemic.

Judge Renato Coelho Borelli said retirees should have a four-month grace period on loan payments. The decision may be appealed.

The judge also ruled that banks should not pay dividends above the minimum required by law, duplicating a measure already taken by Brazil’s central bank. 

Original Story: Reuters | Tatiana Bautzer
Photo: Photo by Bruno Neves for FreeImages.com
Edition: Prime Yield

Europe’s banks brace for bad debt build up from Covid-19 crisis

Europe’s banks are expected to have to set aside billions for potential loan losses as well as take profit hits because of the coronavirus crisis when they start reporting the 1st quarter results.

The region’s banks were already under pressure before the crisis with high costs, low returns, and demands to fix outdated technology. Mergers, which could potentially relieve those issues, have been difficult to pull off because of national barriers.

The largest U.S. banks, which already reported earnings by mid April, set aside $25 billion for credit losses in the first quarter, raising questions about whether European banks would follow suit.

Analysts over the past 30 days have revised upward by almost 130% their expectations for loan loss provisions in 2020 by Europe’s most important banks, according to a Reuters analysis of data from Refinitiv.

At the same time, analysts have cut by more than 40% their full-year profit forecasts for those banks, which include global banks like HSBC, BNP Paribas and Deutsche Bank, the data showed.

Regulators have said they will be lenient in enforcing accounting rules on expected loan losses, but there is pressure on European banks to be realistic about the looming downturn. Lower profitability than their Wall Street rivals will mean European banks have less room for manoeuvre.

«Those U.S. banks make huge amounts of money,» said Rob Smith, financial services partner at KPMG.

«European banks don’t have that luxury of revenue and income to absorb such significant increases» in loan loss provisions, he said. «That in turn that will dictate their approach

Though banks are not legally obliged to come up with the bulk of provisions now, «prudence is a recommendation that should be followed» given the current environment, a person with knowledge of the matter said.

The vulnerability of European banks to the outbreak was highlighted in April by the credit rating agency Fitch, which disclosed that it had taken 116 rating actions on Western European banks, mainly revising their outlook to negative.

The flood of European bank earnings will provide only a partial snapshot of how they are faring so far during the crisis, which began in earnest as the first quarter was well underway. Credit ratings agency S&P said management disclosures and comments would be «more revealing than the results themselves. »

Italian banks, which have worked hard to tackle the legacy of previous recessions, are expected to start raising provisions against loan losses in the first quarter as the economy heads for a contraction which the International Monetary Fund estimates could reach 9.1% this year, analysts say.

Italy’s banks have the highest exposure among European lenders to small- and medium-sized businesses, which are likely to suffer the most from a prolonged lockdown as the country battles with one of the world’s deadliest coronavirus outbreaks.

Morgan Stanley estimated the crisis risks saddling Italian banks with up to an additional €60 billion to €80 billion in impaired loans over the next two-to-three years, an up to 45% increase on the current stock.

Spain’s banks will also report an increase in provisions, said Nuria Alvarez, analyst at Madrid-based brokerage Renta 4.

Santander said earlier this month in a U.S. regulatory filing the pandemic may cause «us to experience higher credit losses» there.

Analysts said that a near standstill in Spain’s economy would first have a direct impact on the banks’ mortgage books, which account for around 40% of their credit portfolios, and on their consumer books, which make up for 8% of lending.

The Bank of Spain said that the country’s tourism- dependent economy could shrink as much as 12.4% this year if the coronavirus lockdown lasts 12 weeks.

At French banks, any higher loan loss provisions are expected to be «manageable», Jon Peace, an analyst at Credit Suisse, said.

Deutsche Bank is the only major European lender that analysts forecast to post a loss for the full year of 2020 as it goes through a costly restructuring. The crisis has made it difficult for the bank to predict whether it will meet its financial targets after years of losses.

Analysts doubled their expectations for Deutsche Bank’s first-quarter and full-year provisions for credit losses compared with early March, according to consensus forecasts published on the bank’s website.

Moody’s has highlighted that Deutsche Bank is among the global Europe-based investment banks that is most vulnerable to loan-loss charges.

Original Story: Reuters| Huw Jones, Valentina Za, Jesus Aguado, Maya Nikolaeva and Tom Sims
Photo: European Comission
Edition: Prime Yield

Brazil’s bailout to airlines to be finalized in May

Government loans for Brazilian airlines battered by the coronavirus crisis would only be ready in May, and not later this month as some had hoped, two sources familiar with the matter told Reuters.

The loans have been publicly announced and are being coordinated by Brazil’s state development bank BNDES. Gol Linhas Aereas Inteligentes and Azul SA have confirmed the talks and suggested loans of around 3 billion reais ($569.10 million) per carrier.

The sources, speaking on condition of anonymity, said LATAM Airlines has also asked for help from BNDES. Gol, Azul and LATAM control virtually all of Brazil’s commercial passenger flights.

The sources added that the amounts requested by the airlines were higher than expected. BNDES has decided it will not rescue the airlines alone, the sources said, and is bringing private banks, debtholders and aircraft leasing companies to the table.

«We have received positive signs from the banks to renegotiate debts,» one of the sources said.

Airlines around Latin America are increasing pressure on their governments for state aid to weather the coronavirus crisis after the United States approved a $25 billion package for its national carriers, much of which is money that will not have to be repaid.

In order to receive the aid in Brazil, BNDES is requesting that airlines cut executive bonuses and investments as well as suspend dividends, the sources said.

The carriers «cannot assume that they will come out with no scratches or without some sacrifices from a crisis like this,» the second source said.

Original Story: The New York Times | Rodrigo Viga Gaier (Reuters) 
Photo: Photo by Cesar Fermino for FreeImages.com
Edition: Prime Yield

Covid-19’s recession will lead to an increase in NPL in Greece

The recession caused by the Covid-19 pandemic will lead to an increase in nonperforming loans (NPL) in Greece through the rise in unemployment, according to the Center for Planning and Economic Research (KEPE).

In its analysis titled “The Effects of Covid-19 on Greek Banks’ Nonperforming Loans,” KEPE explains that the blow from the economic slump will have a stronger effect on mortgage loans, as each percentage point that the gross domestic product falls will lead to a 3% increase in bad mortgages. The acceleration of the unemployment rate by 1% could also lead to a rise in bad loans ranging between 0.33% and 0.96% for corporate and consumer credit.

In any case the rise in unemployment is the main parameter that affects households’ ability to service their loans, so KEPE attributes great significance to the effort to contain the steep rise in bad loans, as well as the increase in state expenditure and the support of the real economy.

In Greece’s case, KEPE noted, that could mean a reduction in the primary budget surplus required for as long as is needed in order to support the economy under the extraordinary conditions comparable to post-war reconstruction. The relatively small impact of the public debt level on NPLs is an encouraging message to those responsible for drafting a more interventionary policy of support for households and corporations, according to KEPE. However, given that the support of incomes and GDP is the main factor affecting NPLs, the role of the fiscal balance should be assessed in combination with the expected favourable effect of public spending.

The financial health of banks, as reflected in the maintenance of strong capital adequacy, is for KEPE an important second line of defence to prevent new NPLs of all categories in the future, as it contributes toward safeguarding confidence in the credit system and in financial stability in general.

The KEPE analysts estimate that the negative impact on bad loans from a possible shift in property prices is expected but should be small, while increasing the incentives offered to banks for strengthening the economy’s funding will provide a small short-term support to the effort to reduce or contain the rise of bad loans.

Original Story: Ekathimerini |Evgenia Tzortzi 
Photo: Photo by Jonte Remos /FreeImages.com
Edition: Prime Yield

National Bank of Greece results hit by NPL provisions

The National Bank of Greece (NBG) reported sharply lower net profit in the fourth quarter of 2019 compared to July-to-September on the back of weaker trading and net interest income and higher provisions for impaired loans.

NBG, Greece’s second-largest bank by assets and 40% owned by the country’s bank rescue fund, said net profit from continued operations reached €18 million versus a net profit of €210 million in the third quarter.

«At present, visibility as regards the future is extremely limited, » Chief Executive Paul Mylonas said in a statement.

«NBG will … do everything it can possibly do to implement efficiently the new policies and solutions approved by national and European authorities to ease the impact from the unprecedented shutdown of large swathes of the economy. »

Greece’s economy is expected to contract by 1% to 3% this year due to the impact of the coronavirus, the country’s finance minister said earlier.

Banks in Greece have been working to reduce a pile of about €75 billion in bad loans, the legacy of a decade-long financial crisis that shrank the country’s economy by a quarter.

NBG said its ratio of non-performing exposures (NPE), which includes NPL and other credit likely to turn bad, fell to 31.3% from 33.5% in September.

Trading income fell to €4 million in the fourth quarter from €129 million in the previous quarter when the bank booked sizable gains from the sale of sovereign bonds amounting to €126 million.

Mylonas said the group would be ready to launch a large securitisation of more than €6 billion of NPE «as soon as market conditions permit. » 

Original Story: Reuters | Georgiopoulos 
Photo: Photo by Michalis Famelis / Wikimedia Commons
Edition: Prime Yield

Portugal’s NPL stockpile shrank €4.5 billion in the fourth quarter of 2019

According to the latest data released by Portugal’s Central Bank (BdP), the nonperforming loans (NPL) stock within the country’s banking system fell €4.5 billion during the fourth quarter of 2019.

The data can be found in the «Portuguese banking system – recent development» report, according to which the national NPL ratio also reduced in the end of the year, from 7.7% in the third quarter to 6.1% in the quarter ended in December. 

The fall in NPL to non-financial companies was from €3.7 billion to 12.3% and from €400 million to 3.7% for individuals.

Due to the crisis caused by the Covid-19 pandemic, the government has created a law that allows families and companies to suspend credit payments until 30 September.

However, these moratoria do not mean default by customers, nor will such unpaid credit have automatic implications for the banks’ bad debts, according to the authorities’ decision.

Original Story: ECO News | Lusa 
Photo: Photo by Hugo Humberto Plácido da Silva /FreeImages.com
Edition: Prime Yield

Coronavirus outbreak in Europe slowdowns collections on NPL securitizations

Measures to deal with the coronavirus outbreak in Europe will slow collections on non-performing loan (NPL) securitisations, according to a new report by Moody’s Investors Service. 

«Following the outbreak, investor sentiment is deteriorating, which will affect real estate prices, and courts are closed, which will delay collections, » said María Turbica Manrique, VP-senior credit officer at Moody’s. 

«These developments are negative for NPL transactions. » The Moody’s report shows that court appraisals, property inspections and auctions are frozen. Until courts return to normal activity, recoveries for NPL transactions will be delayed. 

«Real estate prices could deteriorate to a varying extent across jurisdictions, depending on the magnitude of the economic slowdown and the circumstances of the different property markets, » Turbica Manrique added. 

Italian issue NPL securitisations start from a weaker position in Italy, which had no house price inflation in 2019, compared with transactions in Ireland, Portugal and Spain, where house price inflation was in the 2.5%-5.0% range in 2019. Transactions’ cash flows depend on the timing and amount of collections, Moody’s notes.

«Measures imposed to contain the spread of the coronavirus are disrupting the operations of European judicial systems, which will delay NPL securitisations’ gross recoveries,» Turbica Manrique said. 

However, the report suggests that «the expected growth in NPLs in the wake of Covid-19 will reverse the previous trend». The stock of NPLs at a representative sample of European banks declined to €617.8 bn at the end of the third quarter of 2019 from €714.1 bn a year earlier. Within the sample of European banks, Italian institutions had the highest stock of NPLs at €127.1 bn, or 7.2% of their total loans. The NPL ratio for Greek institutions was also significant at 37.4%, with a stock of €74.5 bn.

Original Story: Property.EU | Isobel Lee
Photo: Photo by Vince Varga in FreeImages.com
Edition: Prime Yield

Portuguese Government approved a 6-month moratorium on bank loan repayments

Portugal’s Council of Minister has approved a six-month moratorium on bank loan repayments for families and companies affected by the coronavirus outbreak.

The measure will remain in place until September 30, with the moratorium representing costing the Portuguese economy €20 billion.

It «forbids the revoking of the lines of credit that were agreed» as well as the «extension or suspension of the credit until the end of this period».

The moratorium is aimed at «people who are in particularly difficult situations, who are unemployed, who are affected by the simplified lay-off regime, who work in establishments that closed due to the state of emergency or a health authority order, people who are in isolation or sick, or who provide assistance to children or grandchildren».

As Economy Minister Siza Vieira said, anyone who faces economic difficulties can request a moratorium on existing loans, including mortgages.

Families with money issues will have to deliver a statement to their bank in order to benefit from the moratorium, the minister explained.

Rádio Renascença points out that many banks – including state bank CGD, Santander, BPI, Crédito Agrícola and Bankinter – had already announced moratoriums before the government’s decision, some of which last up to 12 months.

The government has also approved a draft law, still to be voted on by Parliament, which will create an «exceptional and temporary moratorium on the payment of housing and non-housing rents».

The idea is to give the Institute of Housing and Urban Rehabilitation (IHRU) the power to provide loans to tenants who have seen their income drop due to the pandemic.

The minister said that «establishments which have closed due to measures taken during the state of emergency may be free from paying rent while they are closed».

Original Story: Portugal Resident |Michael Bruxo 
Photo: Photo by Armindo Caetano | FreeImages.com
Edition: Prime Yield

ECB officials push up the creation of a eurozone bad bank

The European Central Bank have held talks with counterparts in the European Comission about creating a eurozone bad bank to remove billions of euros in toxic debts from lenders’ balance sheets, the Financial Times reveals.

According to the newspaper, the plan to deal with debts left over the 2008 financial crisis is being pushed by senior ECB officials, who worry the coronavirus pandemic will trigger another surge in non-performing loans (NPLs) that risks clogging up banks’ lending capacity at a critical time.

However, the idea faces stiff opposition within the European Commission, where officials are reluctant to waive EU rules requiring state aid for banks to be provided only after a resolution process imposes losses on their shareholders and bondholders.

«The lesson from the crisis is that only with a bad bank can you quickly get rid of the NPLs,” Yannis Stournaras, governor of the Bank of Greece and member of the ECB governing council, told the Financial Times. «It could be a European one or a national one. But it needs to happen quickly».

Greek banks have by far the highest level of bad loans on their balance sheets of any eurozone country, making up 35% of their total loan books — a legacy of the 2010-15 debt crisis. They have cut their bad loans by about 40% in four years, under heavy pressure from the ECB. But plans by Greece’s big four lenders to sell more than €32bn of NPLs — almost half the total in the country — are likely to be disrupted by the coronavirus crisis, and Mr Stournaras said the best way to quickly fix their balance sheets is now via a bad bank.

ECB officials have also held talks with the commission’s department for financial stability and capital markets. Senior EU officials have pushed back on the idea, arguing there are better ways to tackle toxic loans, but declined to give further details.

The high-level talks were in their infancy and had been premature, said people with direct knowledge of them.

However, people following the discussions inside the commission did not rule out their resuming at a later stage of the pandemic.

Andrea Enria, chair of the ECB’s supervisory board, proposed the idea of an EU bad bank in early 2017 when he was still head of the European Banking Authority. His idea was blocked by Brussels’ officials citing state-aid rules — but he is now trying to get the plan off the ground again, said people briefed on the matter. The ECB declined to comment.

Total NPLs in the biggest 121 eurozone banks almost halved in four years to €506 bn, or 3.2% of their loan books, by the end of last year. But Greek, Cypriot, Portuguese and Italian banks still have NPL ratios above 6%.

In March, the commission adopted a temporary relaxation of state-aid rules and has since waved through billions of euros in emergency government relief measures. Brussels is also finalising plans alongside member states to allow countries to inject equity directly into struggling businesses, though in return they will be restricted from paying dividends or bonuses while in receipt of state aid. 

Proponents of the bad bank idea hope to make it acceptable under state-aid rules by proposing that the toxic loans would have to be sold into the market after a fixed time period, with the power to recoup any losses from the lenders themselves.Spain, Ireland and Germany all set up state-backed bad banks after the 2008 financial crisis to deal with sudden increases in toxic bank debt. But since then, the EU has introduced the bank recovery and resolution directive, which restricts governments from setting up bad banks except as part of an official resolution process.

Original Story: Financial Times| Martin Arnold and Javier Espinoza
Photo: Photo by Szymon Szymon for FreeImages.com
Edition: Prime Yield

Spanish and Italian lenders hit the most by the pandemic effects

Analysis of recent bank reviews by ratings agency Fitch – in banking markets previously identified by GlobalData as vulnerable to COVID-19 disruption – shows that Spanish and Italian lenders are most likely to suffer from the ongoing market turbulence, writes Katherine Long, an associate analyst for GlobalData Financial Services, Retail Banking.

As Covid-19 spreads throughout the world, GlobalData identified that banking markets in Europe, China, and Canada are most likely to be disrupted.

Similarly, in the last month, a large number of ratings actions have been taken against lenders in these countries by Fitch. Most actions have resulted in either downgrades to long-term issuer default ratings, a negative outlook, or ratings watch. 

And while it was stressed that the likely deterioration in asset quality would occur for virtually all reviewed banks, there were noticeable differences in each market. 

GlobalData has shown that the Spanish and Italian banking markets have seen the largest number of warnings issued while also currently having the lowest default ratings.

Spanish banks such as CaixaBank, Banco de Sabadell, and Bankia remain overexposed to various risky sectors. 

Conversely, lenders such as Ibercaja, Abanca, Grupo Cooperativo Cajamar and Liberbank have been plagued by low profitability, asset quality pressures, and poor capital positions.

Meanwhile, banks in Italy such as the famous Banca Monte dei Paschi di Siena, as well as Banca Carige and Iccrea Banca, enter the Covid-19 crisis already weakened. 

Poor asset quality and lack of profitability had already damaged their ‘commercial effectiveness.’ Other banks such as Banca Popolare are too regionally centric, making them vulnerable to local industries such as tourism. 

Similarly, German banks such as Deutsche Bank and Commerzbank, while stronger than banks in Italy, have also been going through a period of restructuring, leaving them in a weak position as well before the effects of Covid-19 have struck.French and Canadian banks, however, such as BNP Paribas, HSBC Canada, and Bank of Montreal, while considered robust, are still expected to suffer worsening asset quality. This is particularly the case if they are overexposed to sectors such as oil and gas, equity investments, and residential property, which are expected to suffer this year.

Original Story: Leasing Life |Verdict Staff
Photo:Photo by Pablo Rodríguez from FreeImages
Edition: Prime Yield

Spain guarantees up to 80% of SME bank lending to ease coronavirus impact

Spain’s government outlined its burden-sharing scheme for banks as part of state-backed credit lines to help companies limit the impact of the coronavirus crisis, releasing an initial tranche of €20 billion.

The measures are part of a total of €100 billion in state-backed credit lines approved in late March, embedded in an unprecedented, wider €200-billion package.

«The government hopes that these measures will help companies to better weather the negative effects triggered by this health emergency, » government spokeswoman Maria Jesus Montero said.

With nearly 205,000 coronavirus cases and 21,300 deaths, Spain is Europe’s worst-hit country.

Banks have been awaiting the details of credit lines before starting to grant loans to businesses that have already started to temporarily lay off thousands of employees to withstand a near standstill in activity.

As part of the scheme, the state will guarantee around 80% of unpaid loans to self-employed workers and small and medium-sized companies, which represent the bulk of Spanish businesses. These two categories will receive half of the first tranche in credit lines.

The guarantees will cover new or renewed lending but not restructured loans, as had been demanded by lenders.

For bigger companies, the guarantees would cover 70% of potential losses from new loans and 60% of unpaid renewed credit lines. The guarantees would be for up to five years.

Montero said that interest price policy on loans had not been agreed with banks as «the biggest problem is not interest rates but sharing the risk».

In Germany, for example, the government is offering an unlimited volume in loans through the KfW bank that was founded to finance the country’s rebuilding after World War Two.

The loans are 80% guaranteed by the government for larger companies with more than 250 employees, and up to 90% for smaller companies.

European governments are scrambling to put together spending packages to mitigate the blow from the coronavirus pandemic, while the European Central Bank has promised emergency action to buy more than a trillion euros in bonds to support the economy and is offering loans for banks to pass on to small businesses.

Original Story: Reuters |Jesus Aguado and Emma Pinedo, Belen Carreño and Tom Sils 
Photo: Photo by Victor Iglesias from FreeImages
Edition: Prime Yield

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