After the Louvre and Hermitage projects launched in 2020, the Catalan entity has launched the MoMA Project, with which it hopes to sell to opportunistic funds delinquent mortgages valued at 576 million, according to financial sources consulted by El Confidencial newspaper.

The second-largest Spanish group did not comment. These are doubtful mortgages (with more than 90 days of non-payment) that it had already tried to sell before covid-19 was extended, within another larger portfolio known as Tackle, according to the sources consulted.

Although they are pre-Bankia assets, this is the first operation that CaixaBank has put on the market since it absorbed the nationalised entity. The merger has increased the group’s non-performing loans from 8.7 billion to 14.1 billion and net real estate assets (discounting provisions) from 1.1 billion to 2.5 billion. In gross terms, this would be around 4.3 billion. Thus, the group chaired by Goirigolzarri has problematic assets valued at 18.4 billion on its balance sheet, which it needs to lighten before the default derived from the current pandemic crisis picks up.

Even so, the pressure from the European Central Bank (ECB) for all banks to get rid of toxic assets is at its maximum. CaixaBank has therefore decided to speed up this MoMA operation and could be preparing others to close before the end of the year.

This operation covers 5,700 credits from 3,700 creditors who initially requested 576 million, according to information distributed by KPMG to investors. The unpaid amount stands at 495 million. The portfolio is secured by 4,500 properties, which are mainly located in Madrid, Barcelona and Seville, and have a valuation according to the Big Four of 775 million, well above the value of the credits.

Singular Assets
The transaction includes some higher quality assets – properties worth more than one million euros – in locations such as Mallorca, Boadilla del Monte, Pozuelo de Alarcón, Costa Brava, Xàtiva and Barcelona. This operation represents a new litmus test for the sector, after a standstill in the sale of unpaid mortgages caused by operations carried out by Sabadell in 2020, according to the sources consulted. Thus, this entity lowered prices to a level that made it difficult for other banks to go on the market, due to the impact it could have on provisions.

Original Story: El Economista | J. Zuloaga
Photo: CaixaBank website
Translation & Edition: Prime Yield

The Spanish bank is negotiating two sales transactions to Cppib and Cerberus without a competitive process to clean up its properties in Spain.

The bank chaired by Ana Botín is negotiating two sales of troubled assets worth €1.5 billion with the Cppib and Cerberus funds, according to El Confidencial. The bank is negotiating both through a non-competitive process, without giving other investors the option to compete with the funds. These two processes are in addition to a portfolio that the bank already has on the market: the EUR 600 million Talos Project, for which it has received offers from Fortress, Marathon and Tilden Park. In total, Santander has begun the sale of assets worth more than EUR 2,000 million. Through these operations, the bank seeks to reduce its non-performing loans, which are among the highest in the country since the purchase of Popular. The operation underway with Cppib, a Canadian pension fund, covers the mortgages it ruled out buying until 2020, when it reached an agreement with Santander. The fund entered the Spanish market three years ago with the purchase of non-performing loans. On the part of Cerberus, the negotiation would cover unpaid credits worth 500 million euros. Santander has started selling assets worth more than 2,000 million euros.

According to a study by Prime Yield, the sale of bad loans by banks will soar in 2021 and could exceed 7,100 million euros, continuing with the strategy initiated last year by which between the second and third quarters they reduced the stock of NPLs (Non Performing Loans) by 2,400 million euros. Up to March, 700 million euros were transacted. Despite the banks’ efforts to get rid of the product, Spain continues to be the third country in the European Union with the most NPLs. Leading the way is France, with 125.4 billion NPLs, accounting for 2.3% of its total portfolio, and Italy, with 98 billion NPLs, 5.4% of its total stock.

Original Story: EjePrime.com
Photo: Website Grupo Santander
Translation: Prime Yield

Santander is preparing to sell €700 million worth of doubtful trade receivables, financial sources have confirmed to elEconomista. The divestment is, according to the same sources, at an initial stage and is being designed if it will be carried out as a block sale or divided into different portfolios, something that will be decided depending on the appetite of investors interested in these credits. In any case, the idea is to sell them during the course of this year.

With this operation, Santander recovers the pace of sales of non-performing loans, after a year in which the sector was at a standstill due to the pandemic. Santander’s real estate activities unit, integrated within Spain, has EUR 2,781 million in gross customer loans for real estate activity on its balance sheet, of which €924 million are classified as non-performing. Last year it only reduced €24 million of the total with portfolio sales, recoveries and subrogations by third parties, compared to the €1,685 million it reduced in 2019 or the €1,267 million in 2018.

Despite this slowdown in the drain on this type of assets, Santander closed the first quarter of the year with an NPL ratio of 3.20%, lower than in December, when it stood at 3.21%. At the level of Spain, the area with the highest NPL ratio of the whole group, it also continued to fall from December 2020 to March 2021, from 6.23% to 6.18%. This ratio could rise as the loan moratoriums granted expire. The group approved loan deferrals totalling 112 billion, of which 96 billion have expired, and of these, 5% have been classified as doubtful.

Original Story: El Economista | Araceli Muñoz and Eva Díaz
Photo: Santander Facebook
Translation: Prime Yield

The new CaixaBank started up just 10 days ago after the absorption of Bankia and its CEO, Gonzalo Gortázar, has already outlined some details on the strategy of the largest bank in Spain to face the profitability problems of the traditional business due to the negative interest rates. The main executive of the entity has defended in an event organized by ‘El Confidencial’ that the traditional activity of deposits and mortgages no longer works and has opted to grow through new businesses.

“The business of taking deposits and giving mortgages does not work with negative interest rates,” said Gortázar in a discussion where he coincided with the deputy governor of the Bank of Spain, Margarita Delgado. The CEO of CaixaBank has indicated that “today” the function of taking deposits “makes us lose money”. And it considers that this loss is only cushioned “in part” with the granting of loans. “We want them to bring the money to the bank but you see that something does not work if such an important function is not profitable, but quite the opposite,” stressed the manager.

Gortázar has acknowledged that before the pandemic the market was counting on a rise in interest rates soon, but now the situation is different. “We have been with negative rates for five years and the market expects there to be at least another five,” stated the CEO of CaixaBank. To this he added that, with the current demographic and economic model of the euro zone, “you have to think that interest rates are going to be very low for life.”

In this sense, Gortázar has pointed out that a consequence of this monetary policy is that it affects the profitability of the bank, although he has clarified that he prefers “these secondary effects” to a “disease” due to a credit crisis, as happened after the bursting of the housing bubble. This means that “the return on credit production is not enough to compensate for losses on deposits” and therefore advocates “seeking new income for the banking system.”

“We have to broaden the vision outside the box, so that the numbers add up. If not, we can only continue cutting costs and dwarfing ourselves, and that, in the end, is a trip to zero”, defended Gortázar during the discussion. The manager has recognized that the way of charging more commissions to clients so that the bank offices remain open “do not make practical sense” because “people do not accept them and do not understand them.”

It is at this point where the CEO of CaixaBank is committed to “offering more things” to customers, in order to find new revenue streams for banking. In this way, he advocates moving from a “banking services” company to a “financial services” platform. This section includes activities such as insurance or investment funds. In both businesses, CaixaBank has seen its dominance position strengthened with the absorption of Bankia. “We have to find a joint package that works,” said the manager.

These activities are the ones that are moving the banking sector in recent years since they allow new income in commissions for the management of their clients’ assets, compared to income from interest on loans that is in decline. More than a quarter of the fees charged by banks in 2020 already came from investment funds, pension plans or insurance.

To these businesses, Gortázar has indicated that others are being added in the bank in recent times, such as activities “more at the limit” of the financial business field such as mobile financing or renting. The sale of alarms also appears among the attractive businesses for CaixaBank, where it has an alliance with Securitas Direct. All these activities, he pointed out, “already offer us almost 100 million euros in the income statement”.

Original Story: Spain News | Diego Larrouy
Photo: Caixa Bank website
Edition: Prime Yield

Abanca, the heir group of the old Galician savings banks, has closed the purchase of the retail network from Portugal’s Novo Banco in Spain. After the operation, Abanca, will tottal 71,338 million euros in assets owned and 42,368 million of loans to customers under management, 46,037 million in deposits and 11,789 million in off-balance-sheet liabilities. It will have 6,312 employees and 745 offices.

With this, the Galician entity reports that it reaches 100,000 million in business volume and will increase its presence both in retail banking and in the business of companies. The group assures that “the purchase presents a low execution risk and minimal capital consumption.” The agreement contributes 4,287 million of business volume and 10 branches, in addition to 172 employees and 102 financial agents. The closing of the operation is awaiting the authorizations of the competent authorities.

The bank defends that the operation “strengthens” its presence in Spain, especially in Madrid and in “strategic” businesses for the entity. The first is the Personal and Private banking business that has already grown in recent years with the development foreseen in its Strategic Plan and with the purchases of the Deutsche Bank PCB network in Portugal, that of Banco Caixa Geral in Spain and, more recently with the acquisition of Bankoa. The second of the axes that will be reinforced with the purchase of Novo Banco’s Spanish network is the business of companies, especially in off-balance-sheet operations and foreign activity.

In addition, Novo Banco will provide growth potential in lines such as insurance activity. The insurance business is in full growth in Abanca’s strategy after the relaunch of the life insurance company and the creation of Abanca Seguros Generales together with Crédit Agricole Assurances, which already has permission to operate and which will launch its first products own in the next few weeks.

Abanca adds with this operation a new milestone in the construction based on mergers of the banking group that emerged from the old savings banks and is its sixth operation in seven years. The first was in 2014, with the integration of Banco Etcheverría. After that, in 2017, came the purchase of Popular Financial Services and a year later, that of Deutsche Bank PCB. That same year, Abanca added the business of another Portuguese bank in Spain, Caixa Geral. Last year it incorporated Bankoa, whose integration will take place throughout this year.

Original Story: Spain News | News
Photo: Abanca website
Edition: Prime Yield

The investment strategy of reverse mortgage purchase by Socimi Almagro Capital consists of acquiring real estate from older people when they decide to monetize their illiquid savings concentrated in their habitual residence, but staying in the same home for life.

In this sense, the company has an ambitious growth plan for the coming years. Currently, it has a portfolio of a portfolio of 83 homes and an investment of about 40 million. But the objective of the Socimi is to multiply the assets by 20 in the next three or five years, according to Bruno Bodega, CEO of Almagro Capital, to El Economista.

For this, the firm expects to have a capital of 500 million that will allow them to make an investment of 1,000 million in that period. From the Socimi they assure that they already have the “commitment” of some of the partners who entered the last capital increase.

However, the CEO of the Socimi points out that beyond large investors, they want many individuals to enter, because it is a good and comfortable investment. In this regard, he clarifies that «we believe that it is better to participate in 0.1% of a thousand houses than to have one». According to the manager, the share offers an annualized return of 5%.

In Spain, only Almagro Capital operates in the reverse housing model, but in Europe its use is much more widespread. For example, in England and France it is a formula that is highly developed and transactions worth around 4,000 million euros are closed.

Original Story: Iberian Property | Alexandre Lima 
Photo: Almagro Capital site
Edition: Prime Yield

Shareholders of Spanish lenders Unicaja and Liberbank approved their merger, paving the way for the creation of the country’s fifth biggest bank in terms of assets.

The merger – under the terms of which Unicaja will fully absorb its rival to create a bank with 110 billion euros in assets – will bring Spain’s number of banks to 10, down from 55 prior to the 2008 economic crisis.

This marks a further acceleration of the sector’s consolidation in Spain after the merger between state-owned Bankia and Caixabank was completed last week to create the largest domestic lender.

The Unicaja-Liberbank deal will allow the combined bank to save 192 million euros annually and reach a capital ratio of 12.4% following 1.2 billion euros of merger-related costs, the banks said.

“The (merged) bank expects to be more profitable and efficient, which will result in higher organic capital generation to finance its growth, and higher recurring dividends,” Liberbank Chief Executive Manuel Menendez told shareholders.

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

Unicaja shareholders approved a total payment of 16.91 million euros against 2020 results, while Liberbank approved 7.86 million, both in accordance with the 15% dividend cap set by the European Central Bank (ECB).In December the ECB decided to let banks pay out part of their cumulative 2019-2020 profits to shareholders if they have enough capital, easing a blanket ban on dividends and buybacks set during the first wave of the coronavirus crisis.

Original Story: Reuters
Photo: Unicaja site
Edition: Prime Yield

Spain’s public debt reached 120% of gross domestic product last year, above the previously reported 117.1%, the Bank of Spain said on the end of March, after adding ‘bad bank’ liabilities stemming from the financial crisis a decade ago as demanded by Brussels.

The debt-to-GDP ratio spiked from 95.5% at the end of 2019 and 114% in the third quarter of 2020, mostly due to increased spending to cushion the effect of the COVID-19 pandemic and a simultaneous economic slump.

The higher final debt ratio confirms what a senior government source told Reuters last week.

The ‘bad bank’, known as SAREB, was created to take on over 50 billion euros in bad loans and other toxic assets from nine Spanish savings banks during the financial crisis in 2012 as part of an international bailout for Spain’s financial sector.

The accounting change follows demands from Eurostat, the European Union’s statistics body, that the bad bank, known as SAREB, should be considered a public entity. 

Original Story: Reuters| Author: Aida Pelaez-Fernandez 
Photo: Photo by Victor Iglesias from FreeImages
Edition: Prime Yield

Fitch agency predicts a difficult 2022 for Spanish banks. The rating agency estimates that the financial sector will reach a peak in the default rate in 2022, which will be around 6.5% and 8%, although in any case it will depend on the evolution of the economic recovery.
Fitch Ratings expects Spanish banks’ asset quality to weaken as borrowers’ ability to pay comes under pressure from the consequences of the coronavirus crisis, particularly when the support and containment measures expire,” the agency said in a note.

In the opinion of the rating agency’s experts, in 2020 there was already “evidence” of a deterioration in asset quality due to the consequences of Covid-19, although non-performing loans fell to 4.2%, down from 4.5% at the end of 2019.

Nevertheless, Fitch stresses that throughout the year, especially in the fourth quarter, banks have been identifying potential risks and have increased the number of loans classified as Stage 2, i.e. on special watch, the step prior to considering them doubtful. “SME and consumer lending will be the sectors most vulnerable to economic stress,” he concludes.

Original Story: El Independiente | Elena Lozano
Photo: Photo by Lotus Head in FreeImages.com
Translation: Prime Yield

What comes in on the one hand, has to be ‘drained’ on the other. The expected increase in defaults in the coming months is forcing banks to reactivate the configuration of portfolios of new distressed loans created during the crisis. An operation that was practically paralyzed in the first half of 2020 and which the large funds do not expect to resume until the end of this year.

This is explained by various entities consulted by Invertia, protagonists in this type of operation, which have been making room for months to deal with the arrival of these new assets over the coming months. Experts rule out an avalanche as in the previous financial crisis but, without doubt, there will be foreclosures and executions that will swell these portfolios. And they will have to be disposed of as soon as possible.

“For the time being, we expect to see transactions involving the sale and purchase of assets such as mortgage debt in excess of hundreds of millions of euros, but this is a far cry from the billions that were seen in the past,” explain a national financial institution.

It seems logical. The mergers that will be completed during the course of this year will create larger portfolios from the last quarter onwards, which may be of greater interest to the large funds involved in these operations. This will also coincide in time with greater pressure on the banking sector in terms of non-performing loans.

Although banks rule out double-digit growth in NPLs, as the worst predictions suggested just a few months ago, it is necessary to prepare the exit of these new ‘toxic’ assets to avoid undoing the path taken in recent years, in which the cleaning up of the balance sheet has been key for the sector to reach this new crisis on a sound footing.

Especially after the last quarter in which a strong upturn in loans in the so-called ‘stage 2’ (under special surveillance) has been detected. “As a leading indicator of default, we expect that some of these credits end up appearing as bad debts,” warn Axesor Rating in a recent analysis.

They also point to the gross inflow of bad loans in some banks during the last quarter of the year. But this has not led to a deterioration in the average NPL ratio due, precisely, “to the sale of failed portfolios that has offset this effect or the greater increase in the denominator, i.e. loans versus doubtful assets”.

Original Story: Invertia (El Espanol) | Clara Alba
Photo:Photo by Xexo Xeperti from FreeImages
Edition & Translation: Prime Yield

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

Pandemic payment breaks on European loans totalling billions of euros threaten to undermine efforts by the region’s banks to put the coronavirus crisis behind them.

Some of the millions of borrowers who were given repayment holidays by banks and governments across Europe shortly after the outbreak of the pandemic still need relief as a second wave of lockdowns squeezes the economy and puts people out of work.

But the longer their loan repayments are kept on ice, the bigger the potential problem for banks as debts stack up, making them more difficult to tackle.

The European Central Bank’s chief supervisor Andrea Enria has warned of a “huge wave” of unpaid loans that could top €1.4 trillion and has cautioned against postponing writing them off, warning that waiting for loan moratoria to expire could see many borrowers “unravel at once”.

Although the volume of loans on pause fell sharply over the summer, a Reuters survey and analysis of the latest data available shows that loans totalling about €320 billion were still on a payment holiday at 10 of Europe’s biggest banks.

Personal debt in Europe, whether for houses, white goods or cars, is at a record high, European Union data shows. Although some countries cut back in the past decade, consumers in Britain, France and Germany borrowed roughly one fifth more.

So when payment holidays became widespread during the first wave of coronavirus lockdowns in Europe, lenders prepared for losses, with financial results showing that the 10 have set aside some 45 billion euros to cover the cost of unpaid loans.

An analysis of loans still on a payment break at ten of Europe’s largest banks, Santander SAN.MC, HSBC HSBA.L, Barclays BARC.L, Societe Generale SOGN.PA, BNP Paribas BNPP.PA, ING INGA.AS, Intesa ISP.MI, UniCredit CRDI.MI, Deutsche Bank DBKGn.DE and Credit Agricole CAGR.PA, show many thousands are still delaying resuming monthly repayments.

For banks looking to avoid a return to the dark days of the debt crisis a decade ago, there is a delicate balancing act between meeting government requests to go easy on borrowers and not putting their loan books in jeopardy.

Calculating default risk is complicated and banks take many factors into consideration such as the type of loan, the circumstances of the borrower and the wider economy.

Spain’s Santander, which has €39 billion of loans on hold, made 9.6 billion euros of provisions for unpaid debt, while Italy’s Intesa, with €48 billion of loans on moratoria, set aside just 2.7 billion euros this year.

A spokesman for Intesa said customers that took payment holidays were resilient and their exposure to tourism, hard hit by the crisis, was low. Santander declined to comment.

Central banks in Germany, which told banks to prepare for the “worst case” and Portugal, which cautioned of the risks of winding down economic support measures, are worried that if personal debt problems spiral it could suck in banks too.

 “Some banks have more than 20 per cent of their loans on payment holiday. When will gravity kick in? At some point, you have to return to normal business,” Jerome Legras of Axiom Alternative Investments said.

In Italy, payment breaks rose to roughly 10 per cent of mortgage loans at the height of the pandemic, while in Britain it reached more than 15 per cent, calculations by the European Datawarehouse, which collects the data for investors, show.

Payment holidays in Portugal reached 12 per cent, it estimated.

Since then, the majority of borrowers have resumed paying.

But problems linger.

“There is a significant amount of distressed debt throughout Europe,” Ed Sibley, Deputy Governor of the Irish Central Bank said. “And that distress will increase because of COVID-19.”

A recent study by Ireland’s central bank found that although the number of payment breaks had fallen by more than a quarter since June, 9 per cent of Irish loans remain on hold.

It found that hotels and restaurants, among the worst hit by the pandemic, were the most likely to still be on a break.

“For now, job protection measures are in place. But this will start coming to an end,” said Ernest Urtasun, a Spanish lawmaker in the European Parliament. “The number of distressed borrowers will explode in the coming months.”

Banks, however, are hopeful government support, which is being extended around Europe, will help.“Withdrawing support to companies and the economy ahead of time is the time bomb,” said Miguel Maya, CEO of Portugal’s Millenium bcp. “We have to give the economy time to breathe.”

Original Story: Cyprus Mail | Reuters News
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Edition: Prime Yield

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 FreeImages.com
Edition: Prime Yield