Lower-income households suffer twice as many mortgage delinquencies as richer households

Mortgage delinquency remains contained, despite the brutal rise in the Euribor caused by the European Central Bank (ECB) raising official interest rates to combat high inflation. Home-purchase loans, the Bank of Spain reminds, are the last thing people stop paying: they dip into savings and benefits and do not stop paying the instalments for two years on average after they have suffered a significant drop in income, usually due to job loss. This explains why NPLs are at low levels in historical comparison, far from the peak of 6.28% in March 2014, despite rising slightly from 2.33% of the mortgage balance in March to 2.44% in June. But this reality hides notable differences: lower-income households have twice as high a default rate as wealthier families.

According to data from the Bank of Spain, the 20% of households with the lowest gross income (less than 26,695.09 euros per year) recorded a fall in their mortgage delinquency from 3.69% in December 2021 (when the ECB began to tighten monetary policy) to 3.27% last June. But despite the decline, they have a default rate that is double that of the 20% of households with the highest income (more than 40,775.85 euros per year), in which it fell from 1.99% to 1.63%. The data thus confirm the intuitive fact that the lower the income, the more payment difficulties: 3.12% of households with an annual income of between 26,695.09 and 30,735.5 euros, 2.86% of households with an annual income of between 30,735.5 and 34,728.27 euros, and 2.44% of households with an annual income of between 34,728.27 and 40,775.85 euros are in arrears.

All groups of families have seen their average monthly mortgage repayments rise by between 19% and 21% from the end of 2021 to last June, from 453 to 542 euros in the case of the lowest incomes and from 716 to 869 euros in the case of the highest incomes. However, the impact of these increases on family finances has been uneven depending on their economic level. Mortgage repayments have gone from absorbing 23.22% of the gross income of the lowest-income households in December 2021 to 26.23% last June, while in the wealthiest families the rise has been from 17.14% to 19.66%. In other words, it is confirmed that the richer the household, the more margin it has to meet the rest of its expenses once the mortgage has been paid.


The data also show that the weight of mortgage payments in the income of all groups of households is below the threshold considered “prudent” (less than 30%). The Bank of Spain has not detected “alarm signals” in this variable across the board. However, as this is an average, it implies that there are families with mortgages above this level. And bearing in mind that households with lower incomes are those with a rate closer to the barrier (26.23% compared to 30%), it is foreseeable that in this group there is a greater number of families in a more vulnerable financial situation and with a higher risk of defaulting. 

Another indicator in the same direction: the 40% of lower-income households only account for around 11% of the total balance of mortgage loans, due to their lower access to loans because of their lower level of savings to pay the down payment (banks normally require the buyer to contribute 20% of the value of the property), as well as the lower price of the properties they can afford to buy. However, their weight in the nearly 11,000 million euros of doubtful mortgages (defaults of more than 90 days or other subjective characteristics that make non-payment likely) is 16%, higher than what would correspond to them according to their weight in total credit.

This greater financial weakness makes low-income households more vulnerable to the “expected deterioration in credit quality” (i.e. an increase in non-performing loans) that the Bank of Spain foresees. In its recent financial stability report, it noted that the “favourable evolution of the labour market and economic activity, together with moderating inflation, has translated into a notable recovery in household incomes in the first half of the year”. This is what explains why mortgage delinquency has continued to fall. However, it also warned that, although the average mortgage balance rate has already risen from 1.1% at the end of 2021 to 3.5% in September, “a greater pass-through of the increase in (benchmark) interest rates to the cost of households’ outstanding debt is to be expected, which would contribute to an increase in the proportion of indebted households with a high financial burden”.

The institution estimated that just under a third of variable-rate mortgages still have to face a revision of more than one percentage point (plus the differential fixed in the contracts) between June 2023 and June 2024. And it warned that a rise of five percentage points in the Euribor (somewhat higher than that recorded since December 2021), fully passed on to credit, could increase the number of indebted households in a vulnerable situation (interest payments exceeding 40% of income) to represent 14.6% of the total (1.63 million families).

Original Story: Activos |Pablo Allendesalazar 
Photo: Photo by Blues57 in FreeImages
Translation: Prime Yield

Bank’s NPL ratio remains at 3.56% in September

The nonperforming loans (NPLs) ratio of Spanish banks to the private sector remained at 3.56% in September, unchanged from the previous month, according to the lates data published by the Bank of Spain (BdE).

The ratio stood at 3.50% in June and July, before rising by 6 basis points in August, which it maintained in September. However, it is still below the 3.79% reached a year ago, in September 2022. In monetary terms, doubtful loans amounted to €42.081 billion, the third lowest figure of the year.

This figure has been on a downward trend so far in 2023, as it closed last year at €43.159 billion and has not reached the €43 billion mark since. This year’s low was recorded in July, at €41.754 billion.

Looking at the breakdown by type of business, financial institutions (banks, savings banks and credit cooperatives) reached a NPL ratio of 3.44% in September, after a decrease of 1 basis point in the last month. A year earlier, the ratio was 3.70%.

As for financial credit institutions, NPL reached 6.74% of the total, up from 6.47% in August and 6.29% in September 2022.

Original Story: Ecobolsa | News
Photo by Xexo_Xeperti in FreeImages
Edition and translation: Prime Yield

Marathon puts its toxic assets in Spain up for sale: €1.2 billion from Santander and Ibercaja

The opportunistic fund decided to reduce its exposure to the country following the closure of a fund. It had bought corporate loans with real estate exposure.

The Marathon fund, one of the largest opportunistic investors, wants to get rid of a large part of its assets in Spain. This investor has given a sale mandate to Alantra to transfer all the problem loans and real estate assets it has bought in recent years, valued at more than €1.2 billion, according to financial sources consulted by this newspaper.

Original Story: El Confidencial | Jorge Zuloaga 
Photo: Ibercaja – Facebook
Edition and translation: Prime Yield

Spanish banks increase problematic loans by €4.7 billion in Q3

The main Spanish banks increased the volume of non-performing loans (NPLs) and loans under special supervision by €4,772 million in the third quarter compared with the second, concentrated mainly in Santander and BBVA, according to the latest quarterly report by Accuracy on Spanish banks about the Spanish banking sector.

The company points out that the positive trend in NPLs in recent quarters “seems to have reversed” and began to deteriorate between July and September, leading banks to increase their provisions.

Santander has increased its special monitoring loans by 3.3% and its doubtful loans by 1.74%, due to the growing instability outside Europe. Provisions increased by 22.5% year-on-year, driven by the Americas, although the NPL ratio remained almost unchanged. The cost of risk increased by 27 bp, combined with higher provisions on a loan portfolio that was 2.3% lower year-on-year.

BBVA recorded an increase of 2.93% in the balance of loans under special surveillance due to a 2% increase in credit risk across all geographies. However, the increase in NPLS was mainly due to the worsening of retail loans in South America and Mexico. Provisions increased 30.6%, reflected in a higher cost of risk of 111.2 b.p. in the third quarter. quarter. Even so, BBVA’s NPL ratio remained below the 2022 level, falling from 3.5% to 3.3%.

At CaixaBank, according to Accuracy, the balance of NPLS declined 0.9% quarter-on-quarter thanks to the significant drop in consumer loans, but special surveillance loans increased by 4.4% due to the uncertainties in the housing market, forcing the reclassification of certain mortgages. reclassification of certain mortgages.

Provisions reported by this bank in the third quarter increased 39.0% year-on-year and 36.7% in the quarter to €933 million. Even so, Accuracy does not see a deterioration in asset quality, with an NPL ratio that remained stable at 2.7% in September compared to June. 

Bankinter’s NPL ratio increased slightly by 9 b.p., although NPLS declined by €20 million. The bank reported the largest percentage increase (191.9%) in loan-loss provisions among the main Spanish banks, in a context in which the NPL ratio remained stable: in 2022 it stood at 2.1% and at the end of September at 2.2%.

Sabadell’s NPL ratios remained stable, with loan-loss provisions down 3.7% compared to 2022 due to to lower provisions for financial assets and real estate investments.

Unicaja reduced its NPL balance by 9.6% thanks to the sale of an NPL portfolio. Thus, the bank reported a 5.6% drop in provisions in line with the 8.6% decline in loans and advances to customers and a 23% lower volume of inflows to NPLs. The NPL ratio declined to 3.4%.

Although there are also slight upturns in the cost of risk, Accuracy rules out the possibility of a banking crisis.

Analysing the data by geographies, the provisions of Spanish institutions in Europe increased across the board, with Poland being the country where they rose the most (11%).

On the other hand, Acuraccy points out that the profitability of Spanish banks has also improved across the board, and with the exception of Sabadell and Unicaja, they have started to cover their cost of capital, while the stock market value in recent months of BBVA (+64.7%), Santander (+46.8%) and Sabadell (+56.7%) have outperformed the Ibex 35 (+26.4%) and the S&P 500 (16.6%). The worst performers were Bankinter (+3.7%) and Unicaja (+9.2%).

“After the stock market volatility suffered by banks during the US regional bank crisis, European banks, and Spanish banks in particular, are still on an upward trend. In the short term bullish trend with results that continue to improve across the board in line with the rising markets, thanks to a significant increase in revenues due to the rise in interest rates and efficiency ratios higher than their European and American peers”, says the report.

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

Santander sets the sale of a €5 billion NPL portfolio

The sales process of project Talos II is expected to start until the end of the year.

Santander is preparing to launch the sales process of a massive non-perming loans (NPL) portfolio until the end of the year. Valued up to €5 billion, the package was named Talos II, after its predecessor Talos I, a NPL portfolio of €600 million sold to Marathon in 2021 for €100 million.

The full value of the portfolio will only be known when it is presented to the market. To this portfolio of non-performing loans will be added another portfolio, called “Sir Barton”, made up of €530 million of overdue loans whose real guarantees are up for sale.

Original Story: Jornal de Negócios | Fábio Carvalho da Silva 
Photo: Santander sede Ciudad Financiera – website Santander
Edition and translation: Prime Yield

Mortgage delinquencies record highest quarterly rise since March 2014

The brutal rise in the Euribor caused by the increase in official interest rates by the European Central Bank (ECB) is beginning to take its toll on families who got into debt to buy a house. The volume of mortgages that accumulated at least three months of non-payment rose by 3.9% between April and June, to €11,823 million euros, as reported by the Bank of Spain. What is most significant, however, is that the increase with respect to March was €443 million. This is the sharpest quarterly rise since the one that occurred between January and March 2014 (€1,619 million), the quarter in which the peak of mortgage delinquency was reached as a result of the bursting of the housing bubble.  

The balance of doubtful mortgages has been falling more or less steadily since the first quarter of 2014. In all the years that have elapsed, there have only been occasional and anecdotal increases in five quarters, but in all these cases they were minor (between 55 and 213 million euros) and were followed by subsequent falls. This time, however, there are signs that this could be the beginning of a turnaround. ECB interest rates are at their highest levels since May 2001, the Euribor is at a 2008 high and high inflation is eating away at household income and ability to pay.

Non-performing mortgages, however, account for 2.44% of the total, higher than in March (2.33%), but contained in historical comparison. It is notably lower than the rate of 6.28% reached at the peak in March 2014. In any case, it is likely to increase in the coming quarters. On the one hand, because of the aforementioned increase in unpaid mortgages. And on the other, because the mortgage balance has been falling since June 2022 due to the drop in new operations and the increase in early repayments caused by the inflationary shock. The bank’s mortgage portfolio has fallen by €13,290 million and 2.7% since then, to €483,224 million euros.

Consumer and corporate

Household consumer loans are also registering an increase in non-performing loans. In the second quarter, the unpaid balance amounted to €4,148 million, an increase of €86 million and 2.11%, in line with the rise between January and March. The total consumer loan portfolio increased by 1.43% to €94,580 million, but as the increase in NPL was higher, the default rate rose to 4.38%. On the other hand, in loans to companies, both the non-performing balance (down by €522 million and 2.3% to €22,391 million) and the rate (from 4.13% to 4.09%) fell.

The data on NPLs by segment are published every three months and with a certain delay, but those on NPLs for total credit are more agile, which gives clues as to what is happening with defaults in the third quarter. In July, the total balance of doubtful bank loans fell by €399 million and 0.94%, to €41,774 million. The weight of defaults on total credit to the private sector, therefore, remained for the second month at 3.5%, the lowest level since December 2008. Bankers and supervisors, in any case, have been warning for some time that the sharp rise in interest rates will sooner or later lead to a rise in defaults, although they assure that it will be moderate and to manageable levels for the sector.

Original Story: El Periodico | Pablo Allendesalazar<
Photo: Photo by Jason Hochman from FreeImages
Edition and translation: Prime Yield

Sabadell prepares first sale of ‘healthy’ mortgages to improve its accounts

Spanish banks are looking for new assets to dispose of in order to avoid an upturn in delinquency. This is the case of Banco Sabadell, which has just launched the first sale in its history of mortgages that are up to date with payments, but with poor prospects or which have been in arrears in some instalments, known in the jargon as reperforming loans (RPL).

The bank is working with Deloitte to value the sale through a securitisation of the Dara Project, a portfolio of €300 million in healthy mortgages, but with a probability of non-payment.

Original Story: El Confidencial | J. Zuloaga 
Photo: Banco Sabadell website
Edition and translation: Prime Yield

Spanish banks’ NPL ratio remains at 3.5% in July

The non-performing loans (NPL) ratio of Spanish banks remained unchanged at 3.50% in July, after falling by nine basis points in June, according to the latest provisional data published by the Bank of Spain.

The Bank of Spain’s provisional figures show that the NPL was unchanged at 3.50% in July, after falling by nine basis points in June.

Thus, the doubtful assets ratio fell by 35 basis points compared to July 2022 and remained at its lowest level since December 2008, when it stood at 3.37%.

The  lack of change in the ratio can be explained, on the one hand, by the €399 million reduction in the volume of doubtful loans held by deposit institutions and financial credit institutions, to €41,774 million, the lowest volume since July 2008. Compared with the same month in 2022  compared with the same month in 2022, doubtful loans decreased by €5,661 million.

On the other hand, in the seventh month of the year, total credit granted contracted by €11,119 million, to €1.194 trillion. The slowdown is more pronounced in the annual comparison. Compared with July 2022, the decline is €38.08 billion.

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 3.39%, the same ratio as in July 2022. 3.39%, the same ratio as the previous month and down from 3.77% a year earlier.

The NPL ratio of financial credit institutions rose to 6.43% in the seventh month of the year, up from 6.33% in June and above the 6.28% a year earlier. 6.28% a year earlier.

According to data from the Banco de España, provisions for all credit institutions fell to €30,102 million in July, down 1.4% with respect to the previous month and 9.3% with respect to July 2022.

Original Story: Europa Press | Europa Press
Photo: Photo by Victor Iglesias from FreeImages
Translation and edition: Prime Yield

Corporate debt reaches a new record high: demand now exceeds €50 billion

Corporate credit demand has broken the downward trend seen in the last two months and, in June -the latest data available-, the granting of commercial loans exceeded €50 billion, as detailed in the latest report on nonperforming loans (NPL) and credit from the Bank of Spain. The latest metrics published by the national supervisor show that companies continue to increase their indebtedness in order to obtain capital to be able to manoeuvre and undertake new operations. 

Despite the fact that the Spanish economy, like the rest of the European economies, is in a period of monetary tightening, companies continue to demand loans to stay the course and meet operations. It is worth noting that so far this year, the European Central Bank has raised interest rates five times in a row. 

Commercial loans granted exceed €51.7 billion 

As detailed in the latest report on delinquency and credit published by the Bank of Spain, the demand for commercial loans grew by more than 4.5% in June compared to January. Thus, the volume of loans granted amounted to €51.746 b. Banks closed the first half of the year with a growing demand for credit from companies and for consumer loans.

In fact, the volume of consumer credit, in addition to breaking the downward trend seen in April and May, is the highest so far this year. Although banks have tightened lending conditions due to interest rate hikes, commercial credit continues to grow and, up to June, the capital loaned exceeded €51.7 billion.

While it is true that commercial loans have somewhat looser conditions than the rest of the assets, the interest rate hikes have been applied to all loans in the same way, which means that they have also become more expensive. Even so, the volume of capital lent grew by more than €4 billion month-on-month in June.

Original Story: Economia Digital |Alejandro Montoro 
Photo: Photo by Jason Hochman from FreeImages
Edition and translation: Prime Yield

NPL close the first semester at their lowest level in 15 years

The nonperforming loan ratio (NPL) within the Spanish banks fell in June to 3.5%, thus dropping to its lowest level in the last 15 years. According to latest data published by the Bank of Spain and collected by Efe, the balance of NPL has fallen in just one month by around €655 million, standing at €42.173 million, its lowest figure since July 2008, when it was around €41.050 million.

This reduction allowed the weight of the total loan portfolio to be cut by 9 basis points, from 3.59% in May to 3.5% at the end of the first half of the year. This is the lowest ratio since 3.37% in December 2008.

In the years between 2004 and 2007, this percentage remained generally below 1% and then gradually rose until it exceeded 13.6% at the end of 2013. It then embarked on a downward path, which is continuing for the time being.

NPL ratio declines

In year-on-year terms, the NPL ratio has fallen by 38 basis points, from 3.88% in June 2022. Also contributing to this decline in NPLs was the increase in the overall loan portfolio, which closed the first half of the year at over €1.205 trillion, compared with almost 1.192 trillion in May.

The data broken down by type of institution show that the doubtful assets ratio of all deposit institutions (banks, savings banks and cooperatives) closed June at 3.39%, down from 3.39% the previous month and 3.80% a year earlier. The NPL ratio of financial credit institutions fell to 6.33% in the sixth month of the year, down from 6.58% in May and below the 6.22% of a year earlier.

Original Story: La Información |Noticia 
Photo: Photo by Philipp K on FreeImages
Edition and translation: Prime Yield

Spanish banks’ NPL ratio fell to 3.50% in June

The nonperforming loans (NPL) ratio of Spanish banks fell to 3.50% in June, after increasing to 3.59% in May, according to provisional data published by the Bank of Spain.

Thus, the NPL ratio fell by 38 basis points compared to June 2022 and remained at its lowest level since December 2008, when it stood at 3.37%.

The decrease is explained, on the one hand, by the €655 million reduction in the volume of doubtful loans held by deposit institutions and financial credit institutions, to €42.173 billion, the lowest volume since July 2008. Compared with the same month in 2022, doubtful loans decreased by €5.743 billion.

On the other hand, total credit granted rose in June by €13.667 billion, to €1.2 trillion. However, the slowdown in lending can be seen in the year-on-year comparison, as the volume of credit fell by €28.948 billion compared with June last year.

The figures include the methodological change in the classification of Financial Credit Establishments (EFCs), which since January 2014 have ceased to be considered as credit institutions.

Excluding the change, the NPL ratio would stand at 3.59% in June, since the credit balance was €1.174 trillion in that month, 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 June below the 3.39% of the previous month and the 3.80% of a year earlier.

The NPL ratio of financial credit institutions fell to 6.33% in the sixth month of the year, down from 6.58% in May and below the 6.22% of a year earlier.

According to data from the Bank of Spain, the provisions of all credit institutions fell to €30.529 million in June, down 1.10% compared with the previous month and down 8.48% compared with June 2022.

Original Story: Idealista |Redacción 
Photo:  Banco de España
Edition and translation: Prime Yield

Households prefer to take out credit and get into debt rather than not go on holiday

The number of short-term consumer loans has increased by almost 8%. These holiday loans, according to experts, are dangerous because of their high interest rates and because they are not thoroughly analysed by the consumer.

The tightening of monetary policy is causing interest rates on consumer loans to rise. Spanish banks have raised the rate on these loans to over 10% in barely a year. This has not stopped Spaniards from financing their holidays. Between paying more for a loan or not going on holiday at all, citizens have a clear preference. Almost half of those surveyed by Amadeus for its report ‘Consumer Travel Spend Priorities 2023′ consider travelling a priority expense. BNP Paribas’ Cetelem observatory confirms this trend in Spain. Going sightseeing is among the top two options in purchase intention in July for the next three months, along with fashion and sport.

According to the latest data on the amount of outstanding balances provided by the Bank of Spain, €45.868 billion were requested in short-term consumer loans, 7.9% more than in June 2022. Around 10% of this type of credit for up to one year is dedicated to travel, according to the Financial Users’ Association (Asociación de Usuarios Financieros). Therefore, in June 2023 around €4.5 billion have been granted for holidays in Spain. Moreover, as Antonio Luis Gallardo, head of research at Asufin, points out, holiday loans have been gaining in importance for three consecutive years; it is not a cyclical or recent trend, as it predates the pandemic. Other destinations for these loans are works and renovations, studies, vehicle purchases or treasury.

However, financing holidays is a risky action for the financial health of families. “The main problem with this type of loan is that they are not usually very well thought-out loans,” says Gallardo. Loans for tourism purposes are usually not made through a bank, but are often taken care of by the travel agencies themselves. This means that the consumer does not analyse the conditions, nor does he or she compare with other entities.

In addition, interest rates are almost always higher than those of financial institutions, about one or two percentage points, and there is a tendency to pay them in cheaper instalments, which leads to a higher and more lasting indebtedness. “There can be a snowball effect, and suddenly the next trip, back to school or at Christmas, we find it difficult to finance”, adds the head of Asufin.

Besides, the amounts of loans being borrowed are higher, mainly because tourism spending is increasing due to inflation. Observatur reported an increase of €15 per person, reaching €625 during their holidays. CaixaBank also recorded a year-on-year increase in tourist spending in June (+5.7%), which also suggests a certain slowdown in growth in the sector – the lowest rise since spring 2021.

Original Story: Cinco Dias | Samuel Pérez
Photo: Photo by Pablo Rodríguez from FreeImages
Edition and translation: Prime Yield

Banks add €11 billion in provisions anticipating a rising in NPLs

The ECB’s interest rate hikes have boosted banks’ profits after years of low profitability, but the change of scenario has had its downside. Customers are now suffering a growing increase in the cost of their debts and this has forced banks to sharply increase provisions in anticipation of a rise in non-performing loans (NPL).

In the first part of the year, the six large Spanish banks listed on the Ibex added €10.868 in provisions to face a possible default  , an increase of 27% compared to €8.537 billion the previous year, according to a report by the consulting firm Accuracy.

This is considerably higher than the combined profits in Spain of the six banks, Santander, BBVA, CaixaBank, Sabadell, Bankinter and Unicaja, of €5.373 billion in the first half of the year, 49% higher than a year ago. This is despite the fact that the banks are still flush with liquidity, the Achilles heel that precipitated the falls of Silicon Valley Bank and Credit Suisse. Including international activity, the profit for the half year was around €12.4 billion.

The ECB recently warned that the near-term outlook for the economy has deteriorated due to a contraction in demand. The central bank says tighter financing conditions are behind the trend, which may prove key in determining whether it will raise interest rates beyond 4.25%.

Among Spanish banks, the only ones that have not raised provisions have been Unicaja and Sabadell, the latter due to positive impacts on its real estate portfolio and litigation. Santander, on the other hand, raised loan-loss provisions sharply in anticipation of a worse performance by customers, especially in the United States. They rose from €5.770 billion a year ago to €7.426 billion in the first half of the year. This is a rise of 28%.

BBVA has increased provisions by 36%, to €2.087 million, compared with 19% for CaixaBank, to €556 million, and 26% for Bankinter, to €193 million. In the case of CaixaBank, these provisions actually fell in the second quarter compared to the first due to the improved macroeconomic outlook in Spain, but the picture for the half-year as a whole continues to show increases.

For the time being, these movements are part of the preventive manoeuvres before the foreseeable arrival of storm clouds that have yet to appear on the balance sheets of Spanish banks. Santander’s NPL ratio has remained at 3.1%, while those of BBVA and CaixaBank have fallen, in the first case from 3.7% to 3.4% and in the second from 3.1% to 2.6%. On the other hand, Sabadell’s rose to 3.5% and Unicaja’s to 3.6%.

There is another warning light that is also still off. When a loan passes to special surveillance risk it is computed as stage 2 and when the risk is doubtful, it passes to stage 3. These are the two steps prior to default, which have their own accounting drawers and allow banks to anticipate the danger. At the end of the first half of the year, stage 1 and stage 2 of the banks’ accounts amounted to €226.13 billion, just €367 million more than a year ago.

Original Story: La Vanguardia | Iñaki de las Heras 
Photo: CaixaBank website
Edition and translation: Prime Yield

Intrum buys Haya Real Estate from Cerberus fund for 140 million euros

Swedish debt management specialist Intrum has reached an agreement to buy 100% of its rival Haya Real Estate, owned by US fund Cerberus, for 140 million euros, the companies announced in a joint statement on early may.

The transaction will integrate Haya into Intrum’s structure in Spain, thus expanding its client portfolio and volume of assets under management. Specifically, Haya manages more than 11 billion euros in 105,000 real estate assets, which will now be added to Intrum’s portfolio. The Nordic firm is listed on Nasdaq Stockholm and is active in credit and asset management. It has a presence in 25 countries in Europe and Latin America, and last year it expanded its presence in Spain by acquiring the 20% stake in Solvia held by Banco Sabadell. The deal announced on Thursday will see the integration of a team of more than 550 professionals. The companies expect the deal to be completed in the third quarter of this year, once it is approved by the regulator. The bondholders, who represent approximately 60% of Haya’s 340.3 million debt, have already given the go-ahead.

The Cerberus fund had long sought to divest itself of the real estate asset manager, which was founded in 2013 in the heat of the real estate crisis to manage Bankia’s assets. The decision to divest from Haya accelerated from 2018, when the company’s IPO for more than €1bn was thwarted. At that time it had more than €39,884 million in assets under management by Bankia, Sareb, Cajamar, Liberbank, BBVA and other financial institutions. And the valuation of the servicer (the anglicism used to describe these companies in real estate jargon) exceeded 1.2 billion.

While the sale did not come to fruition, the outbreak of the pandemic opened a restructuring process as a result of Haya’s financial problems. Last year, the company led by Enrique Dancausa agreed an ERE for 185 employees after losing contracts to manage assets from Sareb and Unicaja. The agreement announced Thursday, the companies say, will strengthen Intrum’s relationship with Cerberus, one of the largest investors in non-performing asset portfolios (real estate and non-performing loans) globally. And it will expand the Swedish group’s business with some of Spain’s leading financial institutions such as BBVA, CaixaBank and Cajamar.

In addition, the company highlights that the purchase addresses one of the organisation’s strategic priorities for 2023, by accelerating its commercial development and strengthening its secured credit and real estate asset management business.

Original Story: El País | Sandra López Letón
Photo: Intrum website
Translation: Prime Yield

87 billion in loans under special surveillance worries banks

The banking sector is on alert due to a stock of 87 billion in loans that remains under special surveillance. Despite the fact that in recent years banks have kept the average default on loan portfolios at bay, they have also been accumulating a greater volume of loans that are under maximum observation due to doubts that customers can meet their payment obligations.

Banks rule out the impact of non-performing loans and explain that they have been improving their NPL ratios in recent quarters. However, other sources familiar with the sector explain that in recent months there have been fears that a possible more unfavourable macroeconomic environment and tougher conditions imposed by banks due to interest rate rises could ignite the fuse that could cause the stock market to explode.

The Bank of Spain, in its latest Financial Stability Report, details that the volume of loans under special surveillance represents some 87 billion. To give an idea of the magnitude, this is 6.5% of Spanish GDP in 2022. The supervisor details in the document that the figure is 12% lower than the previous year, but also that it is still 24.5% of the level recorded before the pandemic.

Banking supervisors classify loans based on their payment quality: stage 1 (healthy credit), stage 2 (credit under special surveillance) and stage 3 (doubtful loans). Although the loans included in the second stage have not yet defaulted, banks have observed a significant increase in risk from the time of granting. This is the stage before impairments occur and therefore this bag is the focus of attention.

Original Story: Cinco Dias | Ricardo Sobrino
Photo: Banco de España
Translation: Prime Yield

Santander sells distressed loan portfolio worth 1.1 billion euros

Spain’s Santander has agreed to sell a portfolio of distressed loans with a gross value of 1.1 billion euros ($1.21 billion) to U.S. private equity fund Cerberus and real estate loan manager Axactor, Expansion reported on May 5th.

The loan portfolio, dubbed ‘Spirit project’, includes personal loans, some mortgages, and loans to medium and small companies, Expansion said, citing unidentified financial sources.

Expansion did not mention the price or potential discount on the sale of the portfolio, but said the transaction was split into two tranches.

The first loan portfolio, of around 660 million euros, was sold to Gescobro, a Spanish unit of Cerberus, and the second, of around 440 million euros, to Axactor, it said.

Santander declined to comment, while Cerberus and Axactor did not immediately reply to a request for comment.

Spanish banks were very active in the past in shedding real estate assets that went bad in the economic slump that followed the bursting of Spain’s real estate bubble at the end of 2007.

Lenders are now selectively repackaging loans in an attempt to recover some cash that could turn sour following the economic slowdown and the pandemic.Non-performing loans at Spanish banks were still hovering at near record lows of 3.55% in February, far below the all-time high of 13.6% in December of 2013

Original Story: Reuters | Newsroom
Photo: Facebook Santander
Edition: Prime Yield

Rising rates push mortgage repayments to their highest since 2015

Spanish households reduced more than 2.7 billion in loans for house purchases in January, in the midst of the rise in the Euribor, and reaching a volume not seen since May eight years ago.

The outstanding mortgage balance accelerated its fall in January. All the signs are that the Euribor will continue to be on the rocks for the rest of the year, as the European Central Bank (ECB) will have to be more aggressive if it wants to tame an inflation rate that still shows no signs of slowing down. And with the fear that mortgage repayments will continue to rise, families have opted to amortize mortgages as a measure of protection against their escalation and to save themselves an increase in interest, which is already eating into disposable income.

Thus, according to data from the Bank of Spain, in January, the outstanding mortgage balance decreased by €2,758 million, to €508,199 million, 0.54% less than in December 2022. This is the largest month-on-month reduction since May 2015, when households repaid €2,798 million. If the sum of December and January are taken into account, this volume fell by just over €5 billion (in total €5.207 billion). Moreover, the reductions in December and January are equivalent to those experienced between August and November 2022, months in which this trend could already be seen.

Everything points to the fact that the outstanding mortgage balance will continue to fall throughout the year. At the same time, so will the volume of new mortgages granted. Thus, according to data from the supervisory body, 2022 ended up exceeding 2021 (with €62,220 million granted compared with just over €59,000 million in 2021), although at the start of the year there has been a decrease compared with December, of just over €4,100 million, the lowest figure for the whole of 2022 (and in line with August due to lower activity).

And except for the months of August, we would have to go back to 2020, the year of the pandemic (where the granting of credit was impacted by restrictions not only on mobility, but also by greater caution on the part of banks) to see similar figures. 

This is nothing new; financial institutions were already expecting a slowdown in lending for house purchases at the beginning of the year, which would last throughout 2023. If we add to this a contained unemployment rate, this is yet another reason that financial institutions can use to avoid having to significantly increase provisions to cover doubtful loans. Indeed, the Bank of Spain has also noted a further tightening of access to credit.

Original Story: La Información | Cristina Casillas 
Photo: Photo by Philipp K in FreeImages
Edition and translation: Prime Yield

Spain’s falling deposit rates highlight uneven impact of interest rate hikes

With European Central Bank policy makers preparing to hike interest rates yet again at their March meeting, Spanish banks have been paying their customers even less for their savings.

Spain’s lenders paid 0.37% on new household deposits with an agreed maturity of as long as one year in January, down from 0.42% in December, according to ECB data. By comparison, the rate for the savings of French families jumped to 2.34% from 2.13%, while Dutch banks paid 2.03%.

The trend for Iberian savers to get paid less is also seen at Openbank, the digital banking business that’s operated across several European markets by Banco Santander SA, Spain’s biggest lender.

A Spanish or Portuguese client earns a maximum annual rate of 0.2% on the savings account at Openbank, while a customer in the Netherlands can earn up to 1.5% for parking as much as €200,000 ($212,540) in a similar product, the bank said in response to questions. An account at Openbank’s German franchise pays 1%.

The issue of what lenders pay for savings is important because encouraging consumers to save instead of spend is key to the ECB’s efforts to bring inflation to heel. A further hike of 50 basis points in March — described as very likely by ECB President Christine Lagarde — would take its rate increases since July to 350 basis points.

“If credit is getting more expensive but savings are not getting the benefit, the transfer mechanism for monetary policy is not being fully employed,” Angel Talavera, head of European economics at Oxford Economics, said by phone. “Banks are just making more money and their balance sheets are getting stronger.”

Spanish lenders such as Santander are awash with customer funds and under no immediate pressure to offer more to attract savings.

“What really works in an economy is competition so we are in very competitive markets and we are adjusting to each market,” Santander Chairman Ana Botin said in an interview with Bloomberg TV last week.

Original Story: Bloomberg | Charles Penty and Macarena Muñoz 
Photo:Photo by Victor Iglesias from FreeImages
Edition: Prime Yield

ECB reviews more than €150 billion in bank loans at risk of default

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

Banks see an upturn in NPL by the end of the year but are confident employment will hold up

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