Spain’s major banks have built up a shield of 50 billion to protect themselves against possible future insolvencies. At the end of September, the five entities listed on the Ibex 35 (Santander, BBVA, CaixaBank, Sabadell and Bankinter) had €49.402 billion in provisions to cover future defaults, which is €1 billion more than at the beginning of the year.

This is also the largest buffer in recent years, even higher than in 2020 (€47.721 billion), the year in which banks made extraordinary billion-dollar provisions in the face of the impact of the Covid-19 pandemic. In fact, although banks have not yet experienced an upturn in defaults (default figures are at their lowest since 2008), they are covered by these provisions made during the pandemic, the bulk of which they have not released, as a precaution.

Even at the onset of the health crisis, banks had high levels of solvency that allowed them to finance families and companies and to apply relief measures to help with repayments. Now, not only are they better capitalised, but they are also more prudent in building up funds to cover possible future losses due to defaults. If in 2019, the year before the pandemic, coverage ratios for bad loans hovered between 50% and 60%, at the end of September this year it was between 60% and 80%. In any case, the sector expects defaults to begin to emerge in the coming quarters and has prepared itself for when the time comes.

Santander has an insolvency fund of €24.813 billion, while stage 3 loans (considered as doubtful) amount to €36 billion. The bank has a coverage ratio of 70%. BBVA is the most risk-averse bank and has provisions to cover practically all doubtful loans. At the end of September it recorded a doubtful balance of €15.162 billion and a fund of €12.570 billion to cover these potential insolvencies. The coverage ratio is 83%, the highest among the main banks.

CaixaBank’s shield against defaults amounts to €7.867 billion. The Catalan entity has a volume of €11.643 billion in doubtful loans, which means that its coverage ratio is 68% (in 2019 it was 55%).

For its part, Sabadell has set aside €3.038 billion to cover possible insolvencies. The bank has a conservative risk policy. It has a strong mortgage business in the United Kingdom through its subsidiary TSB, where loans are well protected and do not run as much risk of default. Sabadell has also been one of the most active banks in the sale of non-performing loans in recent months to clean up its balance sheet.

Bankinter, which has a business model oriented towards medium and high incomes, has traditionally recorded very low levels of non-performing loans. Even so, the bank has €1.114 billion in provisions to cover doubtful loans, which at the end of September amounted to €1.712 billion.

Supervisors call for prudence

Although for the moment non-performing loans (NPL) have not rebounded in Spain, both the Bank of Spain and the European Central Bank (ECB) have been calling for prudence and are monitoring a possible rise NPL in the face of the crisis of high prices and the continuous rises in interest rates to try to curb inflation. “Banks will now start to reassess the need for higher provisions in their portfolios,” said the chairman of the ECB’s supervisory board, Andrea Enria, a few weeks ago in an interview published by the supervisor itself.

For the time being, the situation is under control. During the pandemic, Spanish households accumulated a lot of liquidity, but with inflation running rampant and the cost of money rising due to interest rate hikes, the sector is worried about the rate at which these funds will be burned. To avoid problems, institutions are already looking for measures to mitigate the effects of monetary policy.

In Spain, the two main employers’ associations (AEB and CECA) are negotiating with the Executive to include in the Code of Good Practices measures to help vulnerable families with difficulties in coping with the increase in their mortgage repayments. Similarly, the European Banking Authority (EBA) is monitoring the increase in delinquency. The body wants to avoid at all costs an over-indebtedness of households and that, faced with the credit crunch, families turn to unsupervised financing.

Original Story: Cinco Dias |Newsroom
Photo: BBVA website
Translation and edition: Prime Yield

The NPL ratio rose in August to 3.86%, from 3.85% in the previous month due to the increase in unpaid loans in consumer finance, according to data published by the Bank of Spain.

The default rate on loans granted by Spanish banks in August broke the downward trend it had maintained for the previous six months and did so after the European Central Bank (ECB) raised interest rates for the first time in eleven years in the euro area; and after inflation peaked in Spain at 10.8% in July. Specifically, the NPL rate rose in August to 3.86%, from 3.85% in the previous month due to the increase in unpaid loans in consumer finance, according to data published by the Bank of Spain.

The outstanding loan portfolio at the end of August totaled €1,225 billion, down from 1,233 billion the previous month, while NPL had fallen to 47.237 billion, some 200 million less.

Compared with August of the previous year, NPL fell from 4.43% at that time to 3.86% in August 2022 and the balance of NPL decreased by more than 6.3 billion. In addition to the total data for the sector, the Bank of Spain publishes each month the aggregate NPLs of banks, savings banks and cooperatives (rural banks), on the one hand, and, on the other, those of consumer finance companies.

Thus, although the sector as a whole rose slightly, NPL ratio from banks, savings banks and cooperatives remained at 3.77% in August, exactly the same rate as the previous month. NPL remained unchanged despite the fact that the loan portfolio fell slightly, to 1,174 billion, thanks to the fact that the balance of defaults fell by the same proportion, to 44.343 billion.

In consumer finance, however, the ratio worsened from 6.28% to 6.30%, with a volume of doubtful loans of €2.705 billion, slightly lower than the 2.728 billion in July. The explanation for the rise lies in the fact that the loan portfolio was reduced to a greater extent, to 42.907 billion. As for provisions, or the capital buffer with which institutions face possible impairment or insolvency, they continued to fall in August to €32,981 billion.

Original Story: La Información | Newsroom 
Photo:Photo by Victor Iglesias from FreeImages
Translation and edition: Prime Yield

Sareb continues to redefine its strategy. The state-controlled entity will cede land to developers with the aim of encouraging the construction of rental housing throughout Spain. In this sense, Sareb has already launched the process through two tenders to hire financial and legal-fiscal advisors, according to El Confidencial. 

The roadmap of the entity controlled by the Frob (Fund for Orderly Bank Restructuring) is to promote through private initiative between 10,000 and 15,000 build-to-rent units throughout Spain, offering a concession period of fifty years. At the end of the concession period, the homes will become part of the public housing stock.  

This new Sareb strategy is part of the change of direction carried out by the entity in recent months, following the takeover by the State in the first quarter of the year. The decision was in response to the change in the statistical consideration by Eurostat, which means that Sareb’s losses are now counted as public debt.

As part of Sareb’s new strategy, the so-called bad bank launched Project Gas last August. The entity launched real estate loans valued at 1,262 million euros on the market and gave until September to submit non-binding bids. 

Sareb’s deadline was to transfer this portfolio before the end of the year. The portfolio, worth 700 million euros, comes from assets transferred by savings banks with the bursting of the real estate bubble. The bank expected the bids to be discounted by an additional 60 to 70 per cent. 

The Gas Project covers some 3,000 loans with 11,000 residential assets as collateral. Of these, there are some 4,800 homes and the rest are garages, storage rooms and land. Most of these are already in the judicial claim phase or in insolvency proceedings. The provinces with the most assets for sale in this portfolio are Valencia (1,997), Almería (1,400), Barcelona (694), Tarragona (671) and Castellón (666).

Original Story: EJE Prime |News 
Photo: Sareb Linked In
Edition and translation: Prime Yield

The EBN Group has set up the first uncollateralised bad debt (NPL) securitisation fund, whose securities are marketed in Spain in the form of a five-year bond, it announced.

EBN Titulización SAU, with advice from EBN Capital SGIIC, has set up ‘NPLs Unsecured Fondo de Titulización’. A first compartment will pay a coupon of 7.5% per annum semi-annually and will additionally repay 7.5% of the principal from the first year. The fund also provides for a series of additional kickers, giving the vehicle a resulting IRR ranging from 8% to 14%, depending on the date of full repayment.

EBN pointed out that Spain is, after France, “the great source of unsecured NPL portfolios in Europe, from which foreign funds that have been buying large portfolios of this type, mainly from the banking sector, have been drinking from it for years”.

With this vehicle, EBN Titulización is the first Spanish entity to manage a securitisation fund of unsecured NPLs, whose securities are offered to qualified Spanish investors, a type of financial asset that until now has been reserved mainly for large funds, and which is very common in other European countries, but that has little or no presence in investors’ portfolios in Spain.

“The ‘NPL unsecured’ is, contrary to what it seems, an asset that is very decorrelated to the economic cycle, being very attractive in the current situation. It has the advantage that its recovery follows highly predictable behavioural patterns, which reinforces its securitisation in bond format”, said Silvia Bonales, Managing Director of EBN Titulización.

EBN Capital’s Director of Business Development, Enrique Castañeda, added that “this is an innovative proposal in line with the fund manager’s DNA”, to provide clients with “sources of true diversification and access to the best risk-return ratio”.

Original Story: Europa Press | News 
Photo:
Edition and translation: Prime Yield

Spanish banks, together with financial regulators such as the European Central Bank (ECB) and the Bank of Spain, confirm that bank arrears will start to rise at some point due to the rise in interest rates, which translates into a greater financial effort for companies and families with variable credits, inflation and the rise in the price of energy, as well as the expected slowdown in the economy. However, for the moment and publicly, they refuse to put a date on when this upturn will be seen. However, as elEconomista.es has learned, internal forecasts from several of the country’s large banks already point to non-performing loans beginning to flourish in the second quarter of 2023.

The forecast that delinquency is going to get worse has sounded like a mantra since the pandemic broke out in Spain. However, the measures implemented by the government and banks to alleviate the effects of Covid-19, such as the ERTEs, credit moratoriums and loans guaranteed by the ICO, together with the ECB’s lax monetary policy, have anaesthetised the situation of households and companies, leading, contrary to initial estimates, to the lowest levels of the last 14 years. According to the latest data from the Bank of Spain, at the end of July, the country’s financial sector NPL ratio stood at 3.85%.

But now, with the rise in interest rates with the aim of curbing inflation, the situation looks set to turn around. The ECB could raise rates to 2.5%, as predicted by the governor of the Bank of Spain, Pablo Hernández de Cos. Despite this hike, inflation in the euro area, which is targeted to reach 2% in the medium term, will remain high over the next two years. The ECB’s forecast is for it to moderate to 7% in 2023, compared with almost 10% at present. As a result of this rate hike, the European body also expects a recession next year.

Far from the last crisis

The arrival of a crisis could complicate employment, the already strained situation of families and companies and lead to more credit defaults. However, no one has yet given a forecast of how high the default rate could rise, although all bankers point out that it will be far from the last great crisis, when the default ratio exceeded 13% in the year 2023, and that it will be manageable.

For the time being, banks have kept down the toxic assets (foreclosed plus doubtful) on their balance sheet thanks to the sale of portfolios, which in the first half of 2022 alone amounted to 14,000 million. In view of the forecasts, banks will have to start increasing provisions to protect themselves from defaults, as requested by regulators. Moreover, the ECB has already asked the European sector for an estimate of the provisions needed in the case of the worst macroeconomic scenario, which assumes that Russia cuts off all gas supplies to Europe. However, the European supervisor is already working with a central macroeconomic scenario based on Russia’s gas supply to Europe being only 20%.

Construction stagnates arrears

Construction stagnates the reduction in NPL that it has been leading since the last great crisis, after reaching maximum thresholds with the bursting of the real estate bubble. The sector closed June with a rate of 8.4%, the same level as three months earlier, breaking the rate of decline. In the case of defaults only in credit institutions, the ratio stood at 8.4%, slightly higher than the 8.3% in March. For their part, consumer finance companies increased their default ratio to 6.28% in June, compared with 6.22% a month earlier.

Original Story: El Economista | Eva Díaz
Photo: Banco de Espana
Edition and translation: Prime Yield 

Polish debt collection firm Kruk is picking up speed in Spain and has ambitious plans for the future. “At group level we have invested more than €160 million – in the acquisition of non-performing debt (NPL) portfolios – and in Spain, to date, we have invested around €90 million so far this year,” says its general manager in Spain, Alina Giurgea.

Founded in Poland in 1998, the company landed in Spain in 2015 with the integration of the Espand platform. Its total investment in those seven years amounts to 200 million and 45% – that 90 million – corresponds to the acquisition of four debt portfolios of unsecured financial institutions closed precisely this year.

Although each portfolio has a price, depending on its characteristics and risk, the average price on the market tends to oscillate on average between 5 and 15% of the debt acquired, so that the final total exposure acquired is several times the amount paid.

“It marks a new phase of development for us,” she says, convinced that it consolidates the firm’s position as a major player on the board. Giurgea declares herself “very optimistic about the future” and says that “the development we have had so far is even going to accelerate”.

Up to June – when it had invested 55 million euros in three portfolios – its investment represented 30% of the 160 million euros committed by the group as a whole. The firm is active in Poland, where it has its roots and headquarters, Italy, Romania, the Czech Republic, Slovakia and Spain. Its main activity is the purchase of defaulted debt in order to manage the recovery in a negotiated and “friendly” way, but it also has clients to whom it offers the recovery of their defaults.

“The group’s results are very good and we hope to replicate this strategy in Spain,” adds the director of Strategic Transactions and Client Relations at Kruk España, Francisco Álvarez, who assures that the firm is “on the right track” and therefore aspires to work with “the largest consumer financial institutions in the sector”.

“We are optimistic, we are looking at opportunities and we are going to try to close the year with some more investment if possible, logically without going crazy. We are very rational, we always do things very carefully thought out and in progression,” he adds.

The portfolio sales market experienced a notable reactivation in 2021, which has even been boosted this year without any more failures. “It was thought that there was going to be a wave of defaults and we were going to see very adverse effects, but this effect is being delayed and, although it is difficult to predict, we are analysing each portfolio in a very analytical way,” says Giurgea.

“The latest bank NPL ratio published – 3.85% in July, according to Bank of Spain data – is one of the lowest historically for ten or 15 years, which means that a very high level of NPLs is not being generated and we are not seeing it either,” adds Álvarez, although he is convinced that it will come.

“Now, as of today, the macroeconomic reality is that we have 10.5% inflation. That means that those of us who are paid on twelve pay slips are losing one of our monthly salaries. The continued rise in interest rates means an increase of between 100 or 200 euros in variable mortgage payments every month for people who have to pay at some point. The unemployment figures are not positive…. So, at some point it has to come. When? We don’t know,” he adds.

Debt with less seniority

“What we do see is that financial institutions are preparing themselves a bit and the portfolios that are being sold have a different type of seniority, we see portfolios that are a bit fresher. In other words, institutions are tending not to wait so long and to sell portfolios earlier,” says the general manager.

Kruk holds 9% of consumer bad debts

Kruk accounted for 9% of the nominal value of defaulted consumer loans sold in Spain up to June. These figures are included by the group in its financial report where it calculates that operations of this type were placed with a nominal balance of close to 3,000 million and for which 186 million was paid. Those closed by Kruk totalled a nominal value of close to 260 million (not including investments after June). Within the group, it was the unit that invested the most, with 31%, followed by Romania (21%), Poland (18%) and Italy (29%).

Original Story: El Economista | Eva Contreras 
Photo: Kruk Twiter
Edition and translation: Prime Yield

Non-performing loans (NPL) granted by all credit institutions to companies and individuals fell in July to 3.85%, slightly down from 3.88% in the previous month, when it fell below the 4% mark for the first time in 14 years.

Provisional data from the Bank of Spain show that the doubtful assets ratio remains at its lowest level since December 2008. The decline with respect to a year earlier is 54 basis points.

The reduction in the NPL ratio of the private sector is due to the fact that the fall in the volume of doubtful loans (-1%) exceeded the decline in credit granted (-0.16%).

Specifically, credit to the resident private sector fell by €1.987 Billion to €1.232 trillion, while the total volume of non-performing loans fell by  €481 million to €47.435 billion (the lowest figure since August 2008).

Compared with July 2021, total lending increased by €11.776 billion and the doubtful balance decreased by €6.209 billion.

The figures include the methodological change in the classification of Financial Credit Establishments (EFCs), which since January 2014 are no longer considered within the category of credit institutions. Excluding the change, the NPL ratio would stand at 3.95%, since the credit balance was €1.2 trillion in July, when excluding the credit of CFCs.

The data broken down by type of institution show that the doubtful assets ratio of all deposit institutions (banks, savings banks and cooperatives) closed July at 3.77%, compared with 3.77% in June and 4.33% a year earlier.

The NPL ratio of financial credit institutions stood at 6.28% in the seventh month of the year, up from 6.22% in June and down from 6.5% a year earlier.

According to data from the Bank of Spain, provisions for all credit institutions fell to €33.18 billion in July, down €178 million in the month and €5.802 billion in the year.

Original Story: Estrategias de Inversión | Europa Press 
Photo: Photo by Victor Iglesias from FreeImages
Edition and translation: Prime Yield