Spain’s six larger banks (Santander, BBVA, CaixaBank, Sabadell, Bankia and Bankinter) accumulate €159 billion in loans and credit lines at risk of default, a pile that has risen by about 20% in the last quarter of the year alone and that is classified under special surveillance. 

This amount represents 8% of their portfolio and stands out as one of the key threats for the accounts of the next two years.

Although the banking sector isn’t yet recording an increase in insolvencies due to the health crisis, due to the moratoriums and the facilities of ICO financing, most of the sector experts consider that throughout 2021 the delinquencies will begin to escalate, especially in the sectors most affected by activity restrictions -tourism, leisure, restaurants and transport, mainly-, but also in consumption and, more residually, in the mortgage segment.

Amid the country’s banking industry, the most significant rise in nonperforming loans (NPL) is expected to occur until the end of 2022, although some bankers, such as CaixaBank CEO, considers that the peak will occur at the end of this year. Against this backdrop, most banks have been accumulating provisions to face these potential losses. However, in the second semester of 2020 their extraordinary provisions have decreased compared to the piggy bank make in the first half, due to the aim of offering better income statements and profitability, despite the slap on the wrist from the Bank of Spain due to the slowdown in endowments.

In total, they have reserved slightly more than €25 billion against the income statement between the extraordinary item for the pandemic and for the regular entry of insolvencies, which is more than double than in 2019. 

Original Story: El Economista |Fernando Tadeo 
Photo: Photo by Victor Iglesias from FreeImages
Translation & Edition: Prime Yield

BBVA announced the close of an agreement with global investment fund company KKR – primarily through its KKR Private Credit Opportunities Partners III fund – to transfer the ownership of a real estate loan and asset portfolio from Unnim with a gross value of approximately €700 million.

Dubbed “Dakar”, the portfolio consists of two types of real estate loans (with and without mortgage guarantees) and REOs (Real Estate Owned) assets.

Over the past three years, BBVA has completed several loan portfolio sale transactions, mostly real estate and mortgage loans. In December 2019, the Spanish bank completed its two largest sales of written-off loan portfolios: Project “Juno”, a portfolio with a gross value of approximately €2.5 billion, and the “Hera” portfolio, comprised of loans to small and medium sized enterprises (SMEs) with an approximate gross value of €2.1 billion.

Before, in December 2018 the bank completed the sale of  the €1.2 billion portfolio “agora” primarly consisting of mortgages (both non-performing and in default loans). In June 2018, BBVA sold a property development loan portfolio worth €1 billion called “Sintra” and in July 2017 it sold another portfolio of loans to developers with a gross value of around €600 million, known as Project “Jaipur”.

Furthermore, in October 2018 BBVA completed the transfer of its real estate business in Spain to Cerberus Capital Management. The closing of the transaction resulted in the sale of Cerberus of an 80% stake in Divarian, the company created to transfer the real estate portfolio. BBVA retained the remaining 20% stake.

Original Story: BBVA
Photo: BBVA site
Edition: Prime Yield

Abanca, the bank chaired by Juan Carlos Escotet, was the protagonist of the last banking operation in 2020 and the first in 2021. In addition to the first issue of subordinated bonds (AT1) this year, announced last week, an agreement was reached in extremis in 2020: the sale of a portfolio of 250 million in refinanced mortgages to the US fund CarVal Investors, according to financial sources consulted by El Confidencial.

Neither Abanca nor CarVal made any comments. This operation is one of those that were negotiated in the last days of 2020 with the aim of having it count in that year’s accounts, which will be presented in the coming weeks. Abanca put this portfolio up for sale in the middle of last year, in a competitive process known as the Eume Project. The sources consulted point out that there were moments when it seemed that the operation would not be successful, due to all the uncertainties that have existed on the mortgage market during 2020: pandemic, real estate prospects, regulation, court rulings and squatting.

The credits included in the Eume Project are up to date, although with some delays during the last 12 months. This type of refinanced loan is usually included within the ‘Stage 2’ fixed by the European Central Bank (ECB), for normal risk under special surveillance, which requires the institutions to advance losses. This factor, together with the possible deterioration of these mortgages due to the covid-19 crisis, led Abanca to accelerate their sale last year. In June, the Galician entity had real estate loans -with some kind of collateral linked to bricks- for a value of 18,850 million, of which 461 million were under special surveillance and 625 million were in doubt. Abanca’s default rate is 2.6%, one of the lowest in Spain, with higher figures for SMEs and the self-employed (5%) and consumer loans (4%).

Original Story: El Confidencial | Jorge Zuloaga
Photo: ABanca website
Translation/Edition/Summary/Adaptation: Prime Yield

Banco Sabadell has sold a portfolio of distressed assets from CAM to the US investment firm KKR for around EUR 130 million.

The sale, which was signed a few days ago, relates to the so-called “Aurora project”, with a book value of approximately EUR 500 million, according to sources close to the transaction, which were advised by Deloitte.

Bain Capital has also participated in the final bid for this portfolio, integrated by the Alicante entity’s toxic assets, which Sabadell assumed in 2011 after a bailout of the Deposit Guarantee Fund (FGD).

Nine years later, the bank presided over by Josep Oliu has managed to divest itself of the portfolio, thus concluding the Asset Protection Scheme (EPA) which it received in exchange for keeping the fund.

This sale also allows Sabadell to continue cleaning up its balance sheet, now that the merger negotiations with BBVA have failed and the group of Catalan origin wants to continue on its own and with a new management, led by César González-Bueno, who will take over from Jaume Guardiola as chief executive.

This is the second operation of this type closed by Banco Sabadell this year, after it signed the sale of a portfolio of non-performing loans to the management company Tilden Park for some 65 million euros just a few days ago.

Original Story: EFE/Expansión
Photo: Sabadell Bank site
Translation: Prime Yield

Spain ordered banks to comply with a six-month extension of a state-backed loan scheme to June next year, designed to help companies struggling with the impact of the coronavirus pandemic.

Economy minister Nadia Calvino told bank clients who have no overdue payments can request these loans. Banks should also provide these loans with longer maturities and grace periods if customers ask for them, the minister said.

“These measures are aimed at addressing potential solvency problems that may start arising and prevent viable companies from shutting down,” Calvino said.

Spain has already provided €108 billion in state-guaranteed loans to its companies, she said.

With nearly 1.5 million cases and 41,253 deaths from COVID-19, and an economy that relies heavily on tourism, Spain has been one of the countries in Europe hardest-hit by the pandemic.

The International Monetary Fund has said Spain is the euro zone country with the highest take-up of guaranteed loans.

At a regular weekly meeting, the cabinet also approved an extension until March of restrictions on forced bankruptcies of companies affected by the coronavirus pandemic to avoid the so-called cliff effect from the withdrawal of some support measures next year.

Guarantees on the state-backed credit lines, designed to help companies amid the pandemic-induced economic crisis, were extended to up to eight years from the originally planned five on most loans.

An extra year was added to the grace periods, which allow borrowers to delay payment without being charged late fees, being found in default or having their loans cancelled.

Companies had been given until December to apply for the state-guaranteed funding scheme of €140 billion. The grace period on a significant volume of loans ends in April, and many small businesses feared they would not have been able to cope with their payments that soon. 

Original Story: Reuters | Belén Carreño 
Photo: Caixa Bank website
Edition:Prime Yield

BBVA and smaller rival Sabadell announced they are in talks to create Spain’s second-biggest domestic lender by assets, the latest move in the accelerating consolidation of the Spanish banking sector.

BBVA/Sabadell merger would mark a significant step in this process, coming after Caixabank agreed in September to buy Bankia for €4.3 billion.

If a BBVA/Sabadell deal goes ahead, the new bank would have nearly €600 billion in assets in Spain and a combined market value, Reuters calculations using Refinitiv data showed.

Taking into account both banks’ international businesses, but deducting the upcoming sale of BBVA’s U.S. division, a merged group would have around €860 billion in total assets, still below Santander’s €1.5 trillion global balance sheet.

Banks across Europe are struggling to cope with record low interest rates, and the economic downturn sparked by the coronavirus pandemic is forcing them to focus on further cost cuts, on a standalone basis or through tie-ups.

Both BBVA and Sabadell said the talks were ongoing and said no decision had been made on whether a transaction would go ahead.

“The entities have initiated a reciprocal due diligence review process as is customary in this type of transactions and have appointed external advisers,” BBVA said in a stock exchange filing.

“It is noted that no decision has been made in relation to the potential merger transaction and that there is no certainty as to whether any such decision will be made or, if that is the case, as to the terms and conditions of a potential transaction.”

Sabadell’s own statement confirmed the talks and said it had initiated a due diligence process and designated external advisers.

Original Story: Reuters | Jesus Aguado 
Photo: BBVA website
Edition: Prime Yield

Leading Spanish banks reported a slight recovery in Q3 domestic earnings compared to the Q2 as net fees and interest income rose, boosted by larger loan and fixed income books.

However, new restrictions that have been imposed in Spain to fight the second wave of Covid-19 are likely to increase loan loss provisions in the next few quarters putting pressure on Spanish lenders’ domestic profitability, according to DBRS Morningstar.

DBRS Morningstar posted an earnings commentary on Spain’s seven largest banks – Bankia, Bankinter, BBVA, Caixabank, Liberbank, Sabadell and Santander.

Non-performing loans (NPLs) decreased in four out of the seven banks this year but other indicators point to a “material asset quality deterioration” in the next few quarters, wrote analysts Pablo Manzano and Arnaud Journois.

These indicators include the ECB ́s latest bank lending survey; Spanish Banks have been tightening access to credit during the Q3 and expect to continue doing so for the rest of the year.

The Bank of Spain ́s stress test published on October 29, meanwhile, showed an expected negative impact on capital ratios ranging between 100bps and 200bps for large Spanish banks on its baseline scenario at the end of 2022.

Moreover, statements made by EU officials, including ECB supervisory board chair Andrea Enria suggest that NPLs at European banks could hit higher levels than the last global crisis.

Therefore, the onset of the Covid-19 second wave is likely to cause “significant asset quality deterioration” in Spain’s banking sector in 2021, according to DBRS Morningstar.

Mr Manzano and Mr Journois wrote that the slow pace of credit quality deterioration reported in the banks’ financials this year, despite the huge economic shock of Covid-19, can largely be explained by the extraordinary measures applied by governments and banks to support the economy, including loan moratoria and state guaranteed loans.

In terms of loan moratoria, an average 6.5% of lenders’ total loan books have been subject to some kind of payment holiday, according to DBRS Morningstar.

The use of ‘stage 2’ loans – loans at risk of turning bad – on the moratoria portfolio remains much higher than on the ‘normal’ portfolio, the analysts wrote, indicating that this perimeter of loans has experienced credit quality deterioration at a significantly higher rate than other parts of the loan book.

Moreover, according to Bank of Spain analysis, the moratoria granted in Spain has targeted borrowers which were already the most vulnerable households, even before the Covid-19 crisis.

In addition, Spanish banks have implemented the state guarantee scheme in Spain and in other geographies. As of September 30, banks have granted around €104 billion in lending to SMEs and corporates in Spain linked to the state guarantee scheme. Credit risk has therefore been mitigated significantly by the state guarantees approved by the Spanish government, according to DBRS Morningstar.

This scheme represents around 25% of the sector’s exposure to SMEs and corporates in Spain. In addition, the Spanish government has also approved a new state guarantee loan scheme of up to €40 billion to provide funding sources to new investment projects.

Original Story: The Banker |David Robinson 
Photo: Banco de España website
Edition: Prime Yield