New Iberian Mortgage Market Assumptions Show Coronavirus Impact

The coronavirus pandemic will push residential mortgage default rates up and home prices down in Spain and Portugal, Fitch Ratings says in a new report. Payment holidays have cushioned mortgage performance from the pandemic’s impact, but job losses mean some borrowers will face payment shocks as their payment holidays come to an end.

We have updated our key analytical assumptions for Iberian mortgage portfolios to reflect the continuing credit effects of the pandemic. Under our ‘Bsf’ rating scenario reflecting our base-case expectation plus a small cushion, the lifetime default rate of a representative mortgage pool has increased to 9.7% in Portugal and 7.8% in Spain, from 9% and 7% respectively”,  says the agency in a note.

Banking system non-performing loan (NPL) ratios have not yet risen from pre-pandemic levels, as payment holidays suppress and delay mortgage defaults. But while payment holidays will have helped some borrowers avoid default, the roll-rate to default for payment holiday loans will be mostly influenced by underlying employment dynamics. Historical data from legacy Spanish portfolios indicates that default rates on payment holiday loans could be about 20% higher than on standard loans.

Borrower support measures may have also delayed evidence of house price drops, amid very low interest rates and expansionary ECB monetary policy. Nevertheless, Fitch Ratings forecasts Spanish nominal house prices to decline approximately by 10% in 2020-2021, and had increased its “Bsf’ rating scenario current-to-trough house price decline (HPD) assumption to 24% from 17%, “mainly because of weakening affordability and fragile consumer confidence due to the pandemic’s impact on GDP and employment.

Unlike Spain, Portugal saw mortgage lending volumes grow in the first half of 2020, supporting nominal price growth in the high single digits. However, Fitch analysts believe lower domestic demand, and a more cautious approach by lenders and also by cash and foreign buyers (who together have accounted for more than half of housing market activity in recent years), will see prices fall by around 2% over the next one-two years. Our current-to-trough HPD assumption for Portugal is unchanged at 26%.

Original Story: Fitch |  Fitch Ratings
Photo: Photo by Xexo Xeperti for
Edition: Prime Yield

Rio de Janeiro

Loan defaults in Brazil fell to historic lows

Bank lending spreads and loan defaults in Brazil fell to historic lows in August, suggesting that central bank measures to loosen financial conditions and combat the coronavirus shock are working.

A broad measure of bank lending spreads fell to its narrowest since December 2013, while a broad measure of household and business loan defaults fell to its lowest since the central bank’s data series began in 2011.

Lending spreads narrowed to 22.3%in August from 23.1% in July, the central bank said. That was the lowest since December 2013, and sharply down from 29% in February just before the onset of the COVID-19 pandemic.

A broad 90-day default ratio covering households and businesses fell to 3.3% in August from 3.5% in July, the central bank said.

The default ratio for non-financial companies fell to a record low 1.6%.

Brazil’s central bank has made available more than 1.2 trillion reais worth of credit and liquidity to businesses, banks and financial markets to cushion the economic shock of COVID-19.

Central bank chief Roberto Campos Neto said last week that they have been a key factor behind the economy’s “robust” recovery.

We know that it is important to keep the credit channel on and always working. The pandemic credit measures have paid off,” Campos Neto said.

The government, meanwhile, has provided direct cash transfers to tens of millions of Brazil’s poorest people. These fiscal and credit support measures appear to have helped revive lending and economic activity, and stave off loan defaults.

The 90-day default ratio for personal credit held steady at 3.6% in August, the central bank said. Total household loan defaults, including borrowing such as auto loans and overdrafts, fell to 4.8% from 5.1%, the lowest since July last year.

The stock of outstanding loans in Brazil rose 1.9% in August to 3.74 trillion reais ($674 billion), the central bank said. Corporate loans rose 2.4% on the month to 1.6 trillion reais, and personal loans increased 1.5% to 2.1 trillion reais.

Original Story: Nasdaq | Jamie McGeever
Photo: Photo by Bruno Leiva from
Edition: Prime Yield

Intrum and doValue expand in Greek NPLs

Greece constitutes a magnet for Europe’s major bad-loan management companies, as it has the fourth largest stock of non-performing loans (NPL). Based on January-March 2020 data, the sum of Greek NPLs came to 61 billion euros, amounting to 30% of all Greek loans – compared to an average rate of just 3% in the European Union.

The high stock of bad loans serves to explain the activation in the Greek market of two of Europe’s three biggest NPL management companies, Sweden’s Intrum and Italy’s doValue, whose prospects are analyzed in a recent report by JP Morgan Cazenove. The latter notes that, after a period of stagnation, the supply of bad loans is expected to increase in the European market, as according to data by Intrum the provisions for loan losses by European banks increased by €120 billion in the year’s first quarter from the same time in 2019.

The Italian group, which recently completed the acquisition of bad-loan management company FPS from the Eurobank Group, is also active in Italy, Spain, Portugal and Cyprus. JP Morgan Cazenove comments that the acquisition of FPS will strengthen the doValue’s revenues by 17% in 2020 and by 12% in 2021.

Intrum is present in 25 countries across Europe, in most cases being the dominant market player. After its agreement with the Piraeus Group for the management of the lender’s bad loans, it constitutes one of the top two servicers in Greece.

According to JP Morgan Cazenove, the Swedish group, which is among the biggest investors through portfolio acquisitions, has a balanced exposure in the market of debt servicing too. The variety of its mix across various market categories, its comparatively low dependence on justice systems and the property markets of the countries it is active in, and its automized loan retrieval systems reduce the shock risks from any further lockdowns.

However, despite the positive outlook for new NPLs, Intrum is trying to reduce its pace of investments so as to reduce its leveraging, which is the sector’s highest. This, according to JP Morgan Cazenove, will likely slow down the Swedish company’s investments, and therefore the growth of its profits in the future.

Original Story: Ekathimerini |Evgenia Tzortzi
Photo: Site Intrum
Edition: Prime Yield

Novo Banco to sell €1.2 billion of Bad Loans until the end of the year

Lone Star’s Novo Banco, Portugal’s fourth-biggest bank by assets, aims to sell as much as 1.2 billion euros of non-performing loans (NPL) by the end of the year as it seeks to post its first annual profit in 2021, according to Bloomberg.

Most of the loans were part of a portfolio called Nata 3 that the lender has been preparing for sale before the pandemic crisis, Chief Executive Officer Antonio Ramalho said in a interview. The bank, controlled by Lone Star, now plans to adjust the sale to reflect the adverse market conditions caused by the Covid-19.

Without the pandemic, it would have been natural for us to sell Nata 3 through a single transaction,” Ramalho said. “We now need to figure out a way of adapting to the current situation.” The portfolio includes mortgages, consumer credit and bigger loans.

Novo Banco, which emerged from the breakup of Banco Espirito Santo SA in 2014, has been selling NPL and non-core assets as part of a plan to lower what was once one of Europe’s highest bad loan ratios.

The Portuguese lender’s NPL ratio was just under 10% in July, down from around 33% in 2016. The goal is to reduce that further this year so that it’s in line with other Portuguese banks, Ramalho said. The average ratio across the industry was 6.5% at the end of 2019.

Demand for NPL portfolios has remained “reasonably stable” in Portugal, Ramalho said. Most buyers are long-term investors based in the U.S. or the U.K.

Novo Banco is sticking to its goal of posting a profit for 2021, according to the CEO. The lender reported a 2019 loss of 1.06 billion euros.

The bank has already received about 3 billion euros from Portugal’s Resolution Fund out of the maximum of 3.89 billion euros allowed under the contingent capital agreement that was set up when Lone Star bought 75% of the Portuguese lender in 2017.

Original Story: Bloomberg |Henrique Almeida
Photo: Novo Banco site
Edition: Prime Yield

NPL ratio among Spanish lenders “shrink to 2.94%

The average non-performing loans (NPL) ratio among the Spanish lenders hit 2.94% by the end of June, reducing from the 3.4% recorded 12 months before, according to the latest data from Spain’s Central Bank.

These figures represent the lowest since the second quarter of 2015, when this historical series began to be published, stresses the same entity. As for segments, Spain’s Central Bank statistics also show that the NPL ratio among the largest lenders was 3.02%, while among the smallest was 2.4%.

Original story: Cinco Dias |News
Photo: Banco de España
Edition: Prime Yield