The supervisor detected risk management weaknesses in the European financial sector and launches a review to prepare banks for economic and geopolitical shocks.

The European Central Bank (ECB) has launched a joint action on European banks to review the portfolio of loans classified under special surveillance, according to financial sources close to the single supervisor. In Spain, the five large institutions (CaixaBank, Santander, BBVA, Sabadell and Bankinter) have a stock of almost 155,000 million euros in these loans.

The ECB is concerned about a sudden burst of non-performing loans (NPL) after a historic rise in interest rates and is trying to prepare the ground for banks. Loans under special surveillance, which fall into the stage 2 or phase 2 category, as it is known in financial jargon, are not non-performing, but the risk of default is considered to have grown significantly in recent months.

Official ECB sources point out that the review of loans at risk of default is part of a specific action under the IFRS9 accounting rules. This rule came into force four years ago and obliges banks to classify as doubtful credit loans unpaid for 90 days and to upgrade to ‘stage 2’ only those in which customers have delayed payment of instalments for one month.

At the end of 2022, according to the latest published accounts, Santander is the Spanish entity with the most loans under special surveillance: 69,100 million. These figures are group-wide and reflect the larger size of the group chaired by Ana Botín, which has more than one trillion in assets spread around the world. They represent 6.2% of its entire credit portfolio.

BBVA declares an exposure of 37,277 million in the group, 8.8%, and CaixaBank 30,616 million, almost 8% of the total. Sabadell has a stock of 14,337 million in loans under special surveillance, a weight of 8.4%, while Bankinter has just 2,851 million.

Fears of a sudden burst of delinquencies

The ‘campaign’, as the ECB calls this type of global action, has been going on since the beginning of the year due to fears of a sudden outbreak of non-performing loans. The supervisor, according to the sources consulted, expects a sudden rise in the default rate especially from 2024, when the increase in the price of money starts to have a greater effect on economic activity.

Pablo Hernández de Cos, governor of the Bank of Spain, warned that credit on special surveillance increased by 7% in the case of households last year. “We must not forget the existing risks, some of which have not yet materialised. Institutions must maintain a proactive attitude in risk measurement and in provisioning and capital policy,” the Bank of Spain governor urged.

The ECB has also been calling for months for banks to take a “prudent approach” to managing risks and bolstering provisions, or at least not to release the extra provisions for the pandemic. The head of supervision at the Eurobank, Andrea Enria, points in particular to the deterioration observed in the consumer loan portfolio, which is a thermometer of economic health. “The dynamics of distressed loans (stage 2 loans), whose average ratio increased slightly in 2022, should be closely monitored,” the Eurobank’s head of supervision said at the presentation of the institution’s supervisory priorities.

Bankers complain that rate rises will not only generate extra income, with the price of money at 3%, but will also have a negative side: they will lead to more non-performing loans. For the moment, the big banks have the default rate under control, with an average of around 3%, and the sector rules out a large increase in defaults at least this year.

Original Story: Vox Populi | Rubén Sampedro 
Photo: ECB main building
Edition and translation: Prime Yield

Doubts about the economic evolution in the coming months are clouding all kinds of forecasts. Despite the uncertainty, banks are trying to anticipate and see a possible upturn in non-performing loans (NPL) at the end of the year. However, they are confident that the resilience of employment, as well as the performance of activity, so far better than expected, will clear up any hint of default.

For the moment, bankers’ concerns are at a minimum, in line with the default rate itself. So, at least, they have made it clear these days during the III Finance Observatory organised by EL ESPAÑOL-Invertia.

Remaining at minimum for months – with the latest data available from the Bank of Spain, the default closed 2022 at 3.54%, the lowest level since December 2008 – the level of defaults does not worry the banks too much, neither in the case of companies nor in that of individuals. “So far we are not seeing a problem in NPLs. It remains at minimum levels both in Spain and in Europe”, explained Alejandra Kindelán, president of the Spanish Banking Association (AEB) at this forum.

Behind this evolution lies, in her opinion, the fact that the economy has not slowed down as much as expected (it should be remembered that some months ago recession was taken for granted), as well as the fact that employment “is holding up very well”.

Moreover, says Kindelán, “banks’ management of NPL and credit portfolios is very responsible and much more proactive now. They have learned a lot from the previous crisis”.

That said, the banks do see the possibility of an upturn in NPL in a few months’ time, especially as a result of the poor digestion that certain companies will make of the increase in costs due to high inflation, which in the euro area still stands at 8.6%, as well as the impact that the rise in interest rates may have on activity.

Future upturn

“The main purpose of the interest rate hike is to curb inflation and it does so by cooling the economy. This cooling will also have an impact on the sector, on the volume of assets in the sector, and potentially on non-performing loans,” said Kindelán.

A view shared by Santander Spain. Ángel Rivera, CEO of the group’s domestic subsidiary, pointed out at the same forum that for the moment there is no worrying delinquency rate, which is also helped by the fact that many families have a good savings cushion, to which they contributed a lot during the pandemic.

“At the end of the year the situation will probably get a little worse,” he warned, however, as the moderation in demand for credit, which is already being felt, together with high inflation, will mean that “the tension” will be “greater” then. “We will see a rise in NPL,” he pointed out, although he referred to the third and fourth quarters to see the evolution of the effect of the measures taken by the central banks.For his part, Carlos Ventura, general manager of Sabadell, pointed out that “it would be reasonable to expect that some sectors or companies will not be able to pass on inflation in the same way, especially in energy, and this will generate somewhat more NPL in these niches than would be reasonable”. “We expect [delinquencies] to be moderate,” he added.

Original Story: El Español | Elena Lozano 
Photo: Banco de España
Edition and translation: Prime Yield

The slowdown in mortgages can be seen in the volume of credit granted to families. Against the general trend, there is an indicator that does grow: consumer credit. This section increased by 3.9% in January of this year if compared with the figures for 2022. The rise is also noticeable in Europe, but the Spanish rebound is 25% above what grows in the average for the area of the euro. The combination of inflation, a weaker household structure and a higher number of variable-rate mortgages are behind the data.

In the first month of the year, consumer loans to households represented €95,651 million, which represents an increase of 3.9% compared to the data from a year ago when they stood at €92,046 million. Between the two numbers, the picture has changed drastically with the start of the war in Ukraine and runaway inflation that led the European Central Bank to make a quick turnaround on interest rate policy.

In the presentation of Caixabank’s results, its executives pointed out that they expected a “slight” fall in consumer credit. It should be borne in mind that Caixabank is the leader in the retail segment in Spain. Sabadell, for its part, considered that it could increase its market share in this consumer segment.  

The focus in this type of loans is now on delinquency, which for the moment seems to be contained. The latest data published by the Bank of Spain show that this indicator continued its downward trend, standing at 3.54% at the end of the year, its lowest level since December 2008. Compared with the general indicator, consumer credit delinquency fell to 5.93%.  

Less disposable income

There are several reasons that point to the increase in consumer credit in Spain compared to other European countries. The rise in inflation, although it is true that it affects the whole of Europe, is more noticeable in a market where the economic structure of the family is weaker, say the experts consulted.  

Another factor that may support this upturn is that the Spanish mortgage market is more heavily weighted towards variable-rate loans than in other countries, although in recent years there has been a change in the trend in mortgages granted by banks. In Spain, and in general in southern Europe, there are more variable rate mortgages.  

The sharp rise in the Euribor in recent months, to close February at 3.54%, has also led to mortgage repayments rising, leaving households with less disposable income. 

In any case, the situation could turn around in the coming months. The latest surveys by the Bank of Spain pointed to a rise in the cost of credit and a closing of the tap on the part of the entities, and the banks already pointed out in their results presentations that they expected a slowdown in mortgages in 2023. However, they noted that consumer credit was one of the segments that could experience a less harsh start to the year.

Original Story: Economia Digital | Marta Garijo 
Photo: Photo by Pablo Rodríguez in FreeImages
Edition and translation: Prime Yield

Housing loans stood at €510.422 billion in January, 2.844 billion less than the previous month, according to the Bank of Spain.

The hole that inflation has left in consumers’ pockets was reflected in January in a notable drop in housing and consumer loans to Spanish families. The loss of purchasing power has become one of the biggest challenges for banks, which have begun to be more punctilious when granting loans which, moreover, have become more expensive in the heat of the rise in interest rates of the European Central Bank (ECB).

The aim is to keep non-performing loans (NPL) at bay, having managed to keep them below 3.5% on average despite the economic difficulties resulting from the energy and price crises. So, the requirements for accessing a loan are getting higher and higher. And the profile of the applicant is increasingly scrutinised.

According to data published on Wednesday by the Bank of Spain, housing loans stood at €510,422 million in January, which implies 2,844 million less than the previous month and 4,180 million less than a year ago, after seven consecutive months of declines.

These falls are associated with the slowdown in housing sales, given the sharp rise in the Euribor, which closed February at 3.52%, increasing the price of variable rate mortgages already signed and also new loans in the sector. A rise in prices that is slowing down the purchasing decisions of future homeowners.

Figures from the Bank of Spain indicate that the amount that households spend on housing still accounts for the largest part of all their debts, approaching 73.5% of the total.

Fall in consumption

Loans for accessing a home have not been the only ones to notice a certain slowdown at the start of the new year. Data from the Bank of Spain indicate that household consumer loans fell in January to €95,651 million, down from €96,687 million the previous month.

The figure, however, is still higher than the €92,046 million a year ago, showing that Spaniards have had to resort to this type of loan more forcefully in recent months to meet their expenses.

On the other hand, household borrowing for other purposes amounted to €86.32 billion, down from 89.03 billion a year earlier and around the same figure as the previous month (86.18 billion).

Original Story: El Correo |Clara Alba
Photo: Photo by Svilen Milev in FreeImages
Edition and translation: Prime Yield

Gathering at home with up to seven credit or debit cards is commonplace. With two bank accounts and a mortgage, the arrival of these plastic cards doubles to 88 million circulating throughout Spain in 2022.

The latest data from the Bank of Spain show that credit cards are being used more and more and debit cards less and less. Moreover, many applications or online payments do not allow debit payments.

By June 2022, there were almost 41 million credit cards in Spain, 7% more than in the same period in 2021 and 15% more than in 2008. The figure has been rising since the end of 2018, when the year closed with almost 37 million cards.

Debit falls by almost 3% to 47.5 million cards issued by June 2022, a figure that contrasts with the increase in this type of payment from 2015 onwards.

The Bank of Spain’s report highlights a new attack on revolving cards. An infinite credit at a very high interest rate that the agency has described as “revolving credit comparable to a permanent credit”.

Non-payments

If there are more cards, there is much more use of them. The pandemic already triggered the payment, but now it has tripled compared to 2008. The year 2021 closed with 6.1 million transactions and almost 200 billion euros in transactions. In June 2022 the amount exceeds 100 billion euros. Their use has risen by 23% and the amounts paid out by 25%.

Banks have already stocked up for a possible scenario of defaults. The numbers, for the moment, are not dramatic. Non-performing loans rose by one point in August, to 3.86 %, and the forecast is that it will not go up because the new criteria for loans or mortgages are very hard to dissuade people.

Original Story: El Debate | Chema Rubio 
Photo: BBVA website
Translation and edition: Prime Yield

The entity continues with its intention to get rid of difficult-to-collect assets and has found an ally in the Swedish bank fund, which has recently closed similar operations with Banco Sabadell.

In the midst of the debate on what will happen to non-performing loans (NPL) in the face of rising interest rates, banks are starting to sell off their portfolios of doubtful loans. Cajamar has joined this trend and has closed several deals in recent months, the latest of which was with the Swedish fund Hoist, a subsidiary of the bank of the same name and a usual suspect in this type of operation. The portfolio for sale, in which the law firm Uría Menéndez has participated, was christened Mesana and included secured and unsecured loans and foreclosed assets after a foreclosure process (REO, in financial jargon), according to sources consulted by La Información. 

With this operation, Cajamar continues the NPL clean-up plan undertaken in recent months. In the presentation of its quarterly results, the entity chaired by Eduardo Baamonde revealed that in September it closed a similar operation for the Ostende portfolio, with a gross book value of 703 million euros, although it did not reveal the name of the purchasing party. This type of sale has led the entity to reduce its NPL portfolio by 310 million euros (-22%).

The buyer of Project Mesane, the value of which has not been disclosed, is the Swedish fund Hoist, a subsidiary of a bank of the same name. It is a regular player in this type of operation and has once again come to the forefront of the sector after having closed a recent operation with Banco Sabadell, in which the Catalan bank opened a competitive process and had KKR as the second interested party. Before the outbreak of the pandemic, Hoist has been interested in similar purchases, such as Banco Santander’s mega-portfolio for the Old Trafford project.

Like the Swedish entity, other institutional investors have also entered the Spanish market. This is the case of Kruk, Axactor and EOS, which last September shared out Caixabank’s largest portfolio of problematic assets after the pandemic. The German company EOS kept most of it, while the other two parts of the portfolio were divided between Axactor and Kruk. The former was awarded the SME debt and the latter, which in previous months had done the same with debts from Cetelem and Carrefour’s finance company, focused on consumer credit debt.

Pending delinquency

The portfolio acquired from Cajamar comprises three types of assets. On the one hand, secured and unsecured loans and, on the other, REOs (real estate owner), which are foreclosed assets after a foreclosure process. The transaction comes amid expectations about what will happen to delinquency rates. Cajamar’s is below the sector average, according to the company’s own data, which shows an improvement compared to recent months, in view of the data compiled up to March by Alvarez & Marsal. 

Original Story: La Información | Cristian Reche 
Photo:Cajamar Sede Social – website
Translation and Edition: Prime Yield

Banks are looking to get €7.5 billion in debt with defaults off their balance sheets against the clock. There are 16 portfolios of non-performing loans (NPL) for sale on the market, with collateral and without guarantees, the divestment of which would bring to €15.3 billion the problematic assets placed throughout the year if they are awarded, as they hope, before the end of 2022.

To date, some 23 transactions with a nominal value of €7.8 billion have been closed and those that remain open were launched weeks or even months ago, with the expectation of awarding them or closing the agreement for the transfer mostly during the current month, according to market estimates.

The process of “cleaning up” balance sheets picked up speed at the start of the year, compared to the €5-6 billion transacted in each of the financial years 2020 and 2021 due to the return to normality post-Covid, without reaching, in any case, the intensity expected by market operators.

Not seeing the expected boom

The reason is that delinquency remains contained (it stood at 3.86% in August) against the conviction that it would emerge significantly after the lifting of the moratoriums on corporate and household loans and the default on the payment of corporate financing guaranteed by the ICO, activated to help customers cope with the hardship of the pandemic.

Banking forecasts delay the upturn to the second quarter of 2023 and it is presumed manageable unless the economic recession worsens due to the rise in interest rates that the European Central Bank (ECB) finally applies to curb inflation, which is galloping at 10.7% in the eurozone.

Even so, the market is observing “fresher” portfolios or portfolios with less aged doubtful loans, which in the eyes of the experts consulted could reflect the banks’ interest in getting rid of unproductive exposures sooner, and smaller portfolios or portfolios with more unique assets have been presented.

Among the portfolios for sale are some six unsecured NPL operations (consumer credit) with a total nominal value of around €1.9 billion, where BBVA’s “Operación Neila” stands out. Sareb’s “Gas Project” stands out among half a dozen other secured and unsecured portfolios, and some real estate assets (REO) with a total face value of €5 billion. The bad bank’s offer alone includes real estate loans worth €1.262 billion and with 11,000 residential assets as collateral.

In addition, there are three other portfolios of real estate assets worth 350 million, where Unicaja’s “Proyecto Leónidas” stands out. Its value, which exceeds 200 million, represents 10% of the foreclosed assets on the financial institution’s balance sheet.

The largest transactions

Among the operations closed during the year were Sabadell, with the sale to Hoist of a mortgage portfolio with a nominal value of 300 million in the “Cora Project”, and another 40,000 unsecured loans with a nominal value of 832 million to the Zolva fund; and CaixaBank, which transferred €1.100 billion in consumer and SME loans in the “Ordesa Project” to the EOS fund, Axactor and Kruk; and another 750 million in the “Yellowstone Project” to Cerberus, among other operations.

Unicaja disposed of Liberbank’s impaired loans with a nominal value of 307 million in “Project Vector” to Axactor; and Kutxabank transferred 240 million in mortgages with defaults in “Project Puppy” to the EOS fund and Deutsche Bank. Santander, WiZink, ING and Cetelem have been other institutions to put non-performing assets up for sale, where there are also transactions between investors seeking, in some cases, liquidity for other positions once they have extracted the profitability or a margin with their initial recovery.

Although the sector has not yet seen signs of deterioration, it expects it to occur and the Bank of Spain is not missing an opportunity to ask institutions to be prudent in their provisions and capital strategies. Despite the fact that institutions have disposed of damaged assets with a nominal value of more than €155 billion between 2015 and last year, according to the consultancy firm Axis Corporate, they still carry one of the biggest burdens in Europe.

The face value of NPLs on the balance sheet reached 78.9 billion in Spanish banks in June, 21.26% of the 371.1 billion in Europe as a whole. It is the second largest charge after France (109.7 billion) and far behind Italy (51.8 billion) and Germany (30.3 billion), the next in the ranking.

155.9 billion euros

This is the impaired exposure (non-performing loans and foreclosed assets) that Spanish banks have sold between 2015 and 2021 according to estimates by the consultancy firm Axis Corporate.

The entity that would have disinvested more is Santander, to evict €39 billion; followed by CaixaBank (€24.756 billion) and Sabadell (€24.606 billion). The ranking of investors is headed by the Blackstone fund (€32.440 billion), together with Cerberus (€26.813 billion) and Lone Star Funds (€17.070 billion).

Original Story: El Economista |Eva Contreras Photo: Big Stock Photo
Translation and edition: Prime Yield