Billions at stake for Spanish banks in top EU court’s mortgage ruling

Spanish banks could face billions of euros in compensation claims if the European Union’s highest court delivers an unfavourable verdict on how they’ve been setting mortgage rates.

The EU’s Court of Justice is examining whether banks are sufficiently transparent with customers about why they were sold mortgages with interest rates based on a Spanish central bank index rather than the more widely used Euribor, which often resulted in thousands of euros in extra costs.

CaixaBank SA is the most exposed lender, with €6.1bn of outstanding mortgages linked to the Spanish central bank’s Loan Reference Index, or IRPH, followed by Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA. In an extreme scenario, banks could be forced to repay clients as much as €44bn, according to Goldman Sachs Group Inc.

While the case was brought by a Bankia customer, the decision will influence how such claims will be judged across Spain in the future. Some one million customers in the country bought IRPH-linked mortgages, paying an average of €25,000 more than those who got loans based on Euribor, according to an estimate by the Association of Financial Users, or Asufin.

A negative ruling for the banks would go against a 2017 verdict by Spain’s Supreme Court, which found that selling the IRPH mortgages couldn’t be abusive because they were tied to an official index.

IRPH is more difficult to calculate than Euribor because it also includes fees and credit risk. Marketed as a more stable option, the Spanish index has consistently produced higher rates for customers since it was created in the early 1990s. But the gap between the two indexes widened after 2008, when the European Central Bank began to drive down its benchmark rate.

A worst-case scenario for the banks would be a verdict that is retroactive, meaning it would include already-matured mortgages and past interest payments on existing contracts. About €108bn of home loans linked to IRPH have been sold since 1999, according to credit rating company DBRS. In September, Advocate General Maciej Szpunar of the EU court delivered mixed messages on the IPRH case in a non-binding opinion. He found that Bankia had been sufficiently transparent with the client, but also concluded that the use of the IRPH falls within the remit of the EU’s rules on unfair terms and therefore Spanish courts can consider it abusive on a case-by-case basis. “The opinion increases the likelihood that the ECJ will rule against the use of the IRPH, which would raise the number of consumer claims against banks for a lack of transparency on the sale of IRPH-linked residential mortgages, exposing Spain’s lenders to heightened litigation risks,” Moodys Investor Services senior analyst Alberto Postigo wrote in September.

Although the EU court follows the findings of its advocates general in most cases, there are notable exceptions. In 2016, it said banks must give back billions of euros to customers who paid too much interest on home loans pre-dating a May 2013 Spanish ruling on so-called mortgage floors. The decision was at odds with the non-binding opinion five months earlier, which had favoured the banks.

Original Story: The Gulf Times | Bloomberg 
Photo: Photo by Pablo Rodríguez from FreeImages
Edition:Prime Yield

Brazilian government lowers its 2020 GDP growth forecast

Brazil’s has just announced it lowered its 2020 gross domestic product growth forecast to 2.1% from 2.4%, citing the economic impact from the global coronavirus outbreak.

It also lowered its 2020 inflation outlook to 3.12% from 3.62%, and maintained its 2021, 2022, 2023 GDP growth forecasts at 2.5%, the Economy Ministry said.

Original Story: Reuters | Marcela Ayres/ Jamie McGeever 
Photo: Photo by Cesar Fermino in
Edition: Prime Yield

Brazil Central Bank lowers banks’ reserve requirements

Brazil’s central bank announced it would lower banks’ reserve requirements on time deposits to 25% from 31%, starting on March 16, in a move that will free up an estimated R$49 billion of liquidity.

In June, the central bank cut the requirement to 31% from 33%, aiming to improve market efficiency. Economy Minister Paulo Guedes said last year up to R$100 billion could ultimately be released into the economy over time using that mechanism.

At the same time, the central bank also raised the share of short-term reserve requirements, a measure it said should lower the amount banks need to hold in high quality liquid assets by a further R$86 billion. The central bank said this should help reduce the overlap between the two instruments.

«Together, these two measures should mean that for every new deposit raised, the amount financial institutions have to put towards complying with these regulatory requirements should be reduced by an average of 8.5 %» the central bank said in a statement.

Banks must hold short-term assets in reserve in case they run into liquidity emergencies, while reserve requirements can be used to help set liquidity levels across the banking system and support broader financial stability, the central bank said.

Original Story: Reuters | Camila Moreira
Photo: Banco Central do Brasil Site
Edition: Prime Yield

Foreign investment in real estate reaches a new all-time high

Capital inflows from abroad for real estate investment in Greece reached a new all-time high in 2019, coming to €1.45 billion and soaring 29.4% from 2018, when the figure amounted to €1.128 billion, according to latest figures from Bank of Greece.

Consequently, based on the data of the payments balance for last year, the real estate sector accounted for 35% of foreign direct investment in the Greek economy that added up to €4.2 billion.

Real estate purchases in Greece by foreigners have been on the rise in recent years, growing more than sixfold compared to 2016, when the amount invested in property by foreigners had come to just €22.4 million.

Even so, there was a slight slowdown recorded in the last quarter of 2019, which may have been coincidental. In the October-December period there was an annual decline of 9.6% from the same quarter of 2018, when an all-time quarterly high of €464.1 million had been registered.

Property market professionals argue that a certain fatigue was to be expected, and this is mainly due to the wait-and-see stance adopted by interested investors ahead of measures to boost the market such as the suspension of value-added tax on new buildings.

Original story: Ekathimerini | Nikos Roussanoglou
Photo: Photo by Toomas Järvet for
Edition: Prime Yield 

Outstanding loans totalled R$3.5 trillion in January

The amount of outstanding loans in Brazil fell to 3.5 trillion reais ($787 billion) in January, marking a decline of 0.4% on the month and a rise of 7% from a year before, the central bank said.

Lending spreads widened on the month to 28.3% from a downwardly revised 27.9% in December, while the 90-day default ratio rose to 3.8% in January from 3.7% in December.

Original Story: Reuters | Jamie McGeever
Photo: Photo by Cesar Fermino for
Edition: Prime Yield

EC warns out Greece on NPLs

Greece passed the test of the fifth post-bailout assessment on Wednesday as the European Comission hailed the country’s progress on reforms and its fiscal position, although concerns remain on the nonperforming loans front.

The Commission’s post-program surveillance report said that Greece’s fiscal and economic prospects have improved and the country is once again projected to exceed the primary budget surplus target of 3.5% of gross domestic product. However, it notes that the planned easing of policy this year (on the solidarity levy, the Single Property Tax – ENFIA and social security contributions) may put off the gradual reduction of the corporate tax to 20%.

In a statement to Ekathimerini, Commission Vice President Valdis Dombrovskis said Greece has generally achieved good progress in fulfilling its reform pledges. However, he did express concern regarding bad loans: «Greece continues to have by far the biggest ratio of NPL in the EU,» he said, adding that Brussels supports the Hercules asset protection scheme aimed at reducing the stock of NPLs, but «it is important to avert the creation of new NPLs.» To achieve that, he noted, Greece needs the appropriate legal framework on bankruptcy and on imposing the terms of loan contracts.

The Latvian official stressed that there is still a problem with strategic defaulters that has to be tackled, and that the very high rate of bad loans is preventing banks from issuing credit to the real economy.

Original story: Ekathimerini | Yannis Palaiologos
Photo: Photo by Jonte Remos for
Edition: Prime Yield  

Spain’s financial sector has sold €120 billion in toxic assets since 2013

Spain stands out as one of Europe’s most successful story in selling non-performing assets, as its financial sector have already sold about €120 billion from the €200 billion of toxic assets held in its books in 2013. 

The figures were released during the Annual Conference of Spain’s Capital Markets, recently held on Madrid and organized by the European Association of Financial Markets together with the Spanish Banking Association. However, and even though most of the participants agreed the country’s stands out as one success story in selling NPL, they also stressed that there are still €80 billion in NPL to clean up.

That’s why during his intervention, the Governador of Spain’s Central Bank (BdE), Pablo Hernandez de Cos, referred to this issue by asking the banks to intensify their efforts to keep reducing its toxic assets.

Original Story: El Español | María Vega 
Photo: Photo by Victor Iglesias from FreeImages
Edition and Translation: Prime Yield

Portuguese lenders granted €10.63 Bn in new housing loans

In 2019 the Portuguese banks granted a total €10.63 billion in new housing loans, recording an 8.1% year-on-year growth, and corresponding to the maximum of the decade.

Commenting on the data released by the country’s central bank (BoP), the Association of Construction and Public Works Industries (AICCOPN), stressed that is necessary «to go back to 2008 to find a year with a greater volume of credit granted».

By the end of 2019, the total stock of mortgage credit within the Portuguese banks amounted €93.290 billion, showing a slight increase of 0.3% year-on-year.

In December, the average value of housing for bank valuation purposes was 1,321 €/sqm, an increase of 8.3% compared with the 1,220 €/sqm in the last month of 2018.

As for the of credit granted to construction and real estate companies, however, there was an annual reduction of 6.6%, with the new contracts totalling €16 billion in 2019. 

Original Story: Eco News | Lusa 
Photo: Photo by Svilen Milev for
Edition: Prime Yield

90-day default ratio dipped to 3.7% in 2019

Bank lending and the financial health of borrowers in Brazil ended 2019 on a positive note, as default ratios and lending spreads fell against a backdrop of strong credit growth.

Central bank figures showed the amount of outstanding loans in Latin America’s largest economy rose to R$3.47 trillion in December, up 1.6% on the month and 6.5% from the year before, the second annual rise in a row.

The figures reflect growing demand for, and availability of, private-sector bank loans free of government influence, instead of credit provided by state-run entities.

Alberto Ramos, head of Latin American strategy at Goldman Sachs in New York, said continued and accelerating economic growth bodes well for the coming months.

«We expect credit conditions to improve … as credit risk moderates with the forecasted gradual economic recovery, and credit demand picks up supported by the forecasted gradual improvement of the labor market backdrop and further decline in rates,» he wrote in a note to clients.

Credit to individuals rose 11.7% last year, and corporate borrowing rose 0.2%, the central bank said, while loans from national development bank BNDES fell 13.9% last year.

Lending spreads fell sharply on the month to 28.5% from 30.6% in November, the lowest level last year, although that was still up from 27.8% a year earlier.

The 90-day default ratio dipped to 3.7% in December from 3.8% the month before, the lowest since the central bank’s series began in 2011.

Original Story: Reuters |Jamie McGeever and Marcela Ayres 
Photo:Photo by Bruno Neves for
Edition: Prime Yield

Eurobank applies to join Hercules bad loan reduction scheme

Eurobank has applied to take part in Greece’s Hercules bad loan reduction scheme via a €7.5 billion securitisation, the country’s third-largest bank said.

Banks in Greece have been working to reduce a pile of about €75 billion in bad loans, a legacy of a financial crisis that shrank the country’s economy by a quarter. Shedding the bad debt is crucial for their ability to lend and shore up profits.

The Hercules asset protection scheme (HAPS) was put in place to help the banks offload up to €30 billion of bad loans.

Similar to Italy’s GACS model, the scheme was created to help lenders to clean up balance sheets and offload bad debt by turning the bundles of bad loans into asset-backed securities that can be sold to investors.

Eurobank said it had submitted two applications to the country’s finance ministry to “opt-in” to Hercules with two securitisations dubbed Cairo I and II.

«The applications relate to the provision of guarantee by the Greek State on senior notes amounting to €1.655 billion in total,» the bank said. An application for Cairo III will follow in the coming weeks, it said.

Overall, Cairo consists of three securitisations of different size and different types of loan claims.

Eurobank aims to reduce its ratio of non-performing exposures to 15% in the first quarter.

Original Story: Reuters | George Georgiopoulos  
Photo: Eurobank Site
Edition: Prime Yield

Sareb looks at the securitization of its credits to developers

SAREB, Spain’s bad bank, is studying new solutions to keep cleaning from its books the toxic assets it inherited from the financial crisis. Securitize part of the Developer’s Credit on its portfolio is one of the solutions on the table, aiming to take advantage of the pull of demand now existing on the market and that in Spain has not had as much supply as in other European countries.

According to SAREB’s Finance & Strategy general-deputy, Iker Beraza, it isn’t the first time this solution is being analysed. «Since 2013 we’ve seen different studies about this theme, but since last year we observed there is more interest (in the market). We’ve been following operations of this sort that have been closed in Portugal and Spain and it seems that the prices can fit in», he explained.

In its intervention during the Annual Capital Market Conference that took place in Madrid, the responsible remembered that SAREB was established seven years ago with the purpose of selling €40 billion in toxic assets and since then has already halved that value. However, there are still other €20 billion to sell and, for that, it will be necessary to explore other ways but without getting out of the radar of larger institutional funds that are «traditional» buyers of this type of assets, such as Blackstone or Cerberus, he explained.

Original Story: El Español | María Vega 
Photo: Sareb Linked In
Edition and Translation: Prime Yield

Spain’s Abanca to buy Portuguese EuroBic bank

Spanish lender Abanca informed it has agreed to buy 95% of the shares in Portugal’s EuroBic, in which Angolan billionaire Isabel dos Santos has been trying to sell a 42.5% stake, in a bid to boost revenues.

This is Abanca’s fifth acquisition since 2014 and its second in Portugal, and is conditional on the completion of due diligence, Abanca said in a statetement. Portugal’s central bank (BoP) had been informed of the deal, which now needs approval from both the European Central Bank and Bop. The price of the deal wasn’s disclosed. 

«We are betting on the Iberian Peninsula», Abanca Chairman Juan Carlos Escotet said in a statement sent by the lender. «This (deal)… allow us to significantly increase our business volumes by more than €11 billion».

By the end of December, EuroBic managed around €5.2 billion in credit as well as €6.15 billion in deposits, according to data provided by Abanca.

Beside Isabel dos Santos’ stake, the acquisition also includes a 37.5% stake in EuroBic belonging to Fernando Teles, the former chairman of Banco BIC Português, as the lender was previously known.

EuroBic has non-performing loan (NPL) ratio of 6.4%, below the average across Portuguese banks last year of 8.3%, and employs 1,482 people and has 184 branches.

Original Story: Reuters |Jesús Aguado and Catarina Demony
Photo: Site EuroBic
Edition: Prime Yield