The rate of non-performing loans (NPL) fell slightly in September from 3.44% to 3.43% in the midst of a slowdown in financing costs and brings the balance of NPL to over 40.4 billion.

One of the main achievements of Spanish banks after the rise in interest rates has been to keep the NPL ratio at historically low levels. The favourable evolution of the economy and the resilience of the labour market have contributed to this downward trend, pushing the NPL ratio down to its lowest levels ever. According to the latest data published by the Bank of Spain (BdE), the default rate closed September at 3.43%, slightly lower than the 3.44% recorded the previous month.

It is again close to the 3.42% it reached in June, coinciding with the first cut in the price of money implemented by the European Central Bank (ECB). In year-on-year comparison, the rate contracted by a little more than one tenth of a percentage point from 3.56%, which translates into 1,627 million less doubtful loans, down to 40,454 million. The slowdown in the Euribor has contributed to this trend and gives mortgage holders some respite. It should be recalled that the benchmark index of the mortgage market in Spain closed the ninth month of the year below 3%, something that had not happened since the end of 2022.

The organisation differentiates between the aggregate delinquency of banks, savings banks and cooperatives and that of consumer finance companies. In this regard, the former ended September at 3.32% and fell in the same proportion as the overall figure, although the amount rose slightly by 19 million to 37,420 million. Compared to a year ago, it fell by one tenth of a point. At the same time, in the case of consumer loans, the rate fell by more than two tenths of a point to 2.48%, although the amount of defaults only fell by two million per month.

The vertical rise in the cost of financing more than two years ago alerted the banking sector to a possible upturn in NPL, which in the end has not occurred. The measures promoted by the government to help mortgagors in difficulty have also helped to contain this rate, which peaked last February at 3.62%. This behaviour is recorded in the midst of an upturn in the granting of loans, which has been rising in double digits throughout the year.

In fact, the demand for mortgage loans has just experienced its best September since 2009 with the granting of 4,885 million in financing for housing. In the same month fifteen years ago, loans of this type were granted for a value of 5,235 million. The difference with that time is that the bursting of the housing bubble had already begun to hit the economy and the cost of financing hovered around the barrier of 1%, while at the end of the third quarter it stood at 3.5%, 0.25% higher than it oscillates at the present time.

Looking ahead to the final stretch of the year, the sector expects to remain at these levels in a context marked by the activation of the countercyclical buffer of 0.5% in a scenario of ‘moderate risks’, which will apply from October 2025. Subsequently, and depending on systemic risks remaining at standard levels, the percentage may be increased by another half a percentage point at the end of next year to be applicable twelve months later.

Original Story: La Información Económica | Author: Carmen Muñoz
Edition and translation: Prime Yield

Axactor ASA (Axactor) entered into an accretive €83 million sale of NPL portfolios in Spain. In parallel, the company announces an anticipated negative revaluation of the remaining portfolios for the fourth quarter 2024.

Axactor has entered into a binding agreement to sell NPL portfolios for a total of €83 million, representing a 2% premium over book value. The transaction represents approximately 6% of Axactor’s total NPL portfolio and the proceeds from the transaction will be used to reduce debt. The positive impact on cash metrics, such as cash EBITDA, is significant, supporting covenant compliance for at least the next four quarters.

“We believe this transaction demonstrates Axactor’s commitment to enhancing financial stability while navigating challenging market conditions. This strategic sale not only supports covenant compliance but also provides flexibility to manage our portfolios proactively,” says CEO Johnny Tsolis.

Additionally, as part of the routine quarterly NPL revaluation process, Axactor has booked a net negative NPV of changes in collection forecasts of €12 million so far in the fourth quarter, and October collections ended €3 million below forecasts (corresponding to a collection performance of 90%). Further meaningful negative revaluations are anticipated before quarter-end, and will be published as part of the fourth quarter 2024 report. The revaluations do not have any cash impact, and as such do not impact neither the interest coverage nor the leverage ratio covenants. There is sufficient headroom under the loan-to-value covenants to remain compliant also after the anticipated revaluations.

Together, these actions provide the company with a strengthened covenant position, further reinforcing the balance sheet.

Original Story: Axactor ASA
Edition: Prime Yield

Banco Santander is releasing more unproductive assets from an old acquaintance. The bank has sold unsecured re-performing loans (RPL) to individuals and SMEs to US fund Balbec Capital for a total of around 90 million euros, market sources told elEconomista.es.

The structure of the sale is unique, as the company will continue to service the current loans, along with other mechanisms to avoid any reputational risk with clients and is linked to an agreement that guarantees the fund the future purchase of the loans that may go unpaid.

“Re-performing debt consists of healthy financings that have been restructured or defaulted in the last year and has become an asset that is increasingly important in the portfolio sales market.

Despite the fact that they are current, the fact that they have suffered payment incidents or have been restructured implies a consumption of provisions for the banks, which see an incentive to transfer the risk in the possibility of reducing this burden, although they usually retain their management due to the link with the client. In fact, many transactions are carried out through securitisation, which allows the risk to be deconsolidated while maintaining this link.

Santander relied on Alantra for the operation now being completed, a consultant it has also used this year to carry out the Turf and Frankel projects, and in previous years for the sale of the Model and Titan projects, among others.

Original Story: El Economista | Author: Eva Contreras
Edition and translation: Prime Yield

Sabadell and Cerberus are in court in a dispute valued at 365 million euros.

Sabadell and Cerberus are facing each other in court with a dispute valued at €365 million . The bank claims the U.S. fund for not paying what, in its opinion, it owes for the purchase five years ago of three portfolios of real estate assets residing in Spain, according to the Financial Times.  

The origin of the conflict goes back to the process carried out by Sabadell to “clean up” the toxic assets that accumulated on the balance sheet after the financial crisis. Like the rest of the banks, the entity packaged the damaged exposure and sought to deconsolidate it by selling it to a third party.

The entity thus agreed in 2018 and, after a competitive process,to sell to Cerberus theportfolios ‘Challenger’, ‘Coliseum’ and ‘Rex’, which had properties of all types for a total gross value close to €6,414 million.

The transaction consideration set at around 3,500 million euros and, as usual in these operations, both partners agreed to defer in time up to 21% of the total amount -some 600 million-, according to sources close to the judicial process.

Some of the properties in the portfolio lacked the relevant registration in the Spanish property registry due to issues such as being in the process of repossession or auction under development. And under the agreement, Sabadell must resolve these registrations to regularize the situation of the properties, with a three-year period until the end of the 2022 financial year.

The bank anticipated the works on the properties in the portfolio ‘Coliseum’and Cerberus paid the deferred payment associated with it – about 170-180 million-. The amount outstanding was thus reduced from around €600 million to around €400 million.

The conflict came with the ‘Challenger’ and ‘Rex’ portfolios. Sabadell complied with the records in a package of real estate valued at €365 million that now demands in court, but the American fund refused to support the payment alleging that it had not been satisfiedon the totality of the assets.

Following Cerberus’ refusal, Sabadell sued the fund in January 2023 in the High Court of Justice in England because the fund’s company guarantor of the agreement formalized in Spain is subject to British law.

The trial was held last week and the magistrate in charge of the case advanced his intention to issue a ruling before Christmas, in the second week of December. The ruling could be final because it is very unusual to file appeals in the United Kingdom and is reserved for very narrow issues.

Original Story: El Economista
Edition and translation: Prime Yield