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

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

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

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

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

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

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

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

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

Fears of a sudden burst of delinquencies

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

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

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

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

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

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

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

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

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

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

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

Future upturn

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

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

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

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

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

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

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

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

Less disposable income

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

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

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

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

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

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

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

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

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

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

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

Fall in consumption

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

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

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

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

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

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

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

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

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

Non-payments

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

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

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

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

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

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

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

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

Pending delinquency

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

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

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

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

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

Not seeing the expected boom

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

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

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

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

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

The largest transactions

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

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

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

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

155.9 billion euros

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

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

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

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

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

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

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

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

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

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

Supervisors call for prudence

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Far from the last crisis

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

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

Construction stagnates arrears

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

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

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

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

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

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

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

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

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

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

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

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

Debt with less seniority

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

Kruk holds 9% of consumer bad debts

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

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

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

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

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

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

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

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

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

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

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

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

A total of eleven banks lost money between January and June 2022 in Spain, two fewer than in the same period a year earlier, according to individual data from the Bank of Spain.

The Bank of Spain reported that eleven banks lost money in the first half of 2022 – seven of these institutions (JPMorgan Chase Bank, Banco Europeo de Finanzas, Targobank, WiZink, Evo Banco, Credit Suisse AG Sucursal en España and Singular Bank) were already in the red in the first half of 2021.

JPMorgan Chase Bank National Association S.E. increased its losses by 17.3% in the first half of 2022, to €3.8 million, Singular Bank increased its losses by 84.6%, to €11.6 million, and Banco Europeo de Finanzas lost €141,000 until June, 4% more.

Targobank reduced its losses by 51.4%, to €4.26 million; WiZink cut its losses by 53%, to €12 million, Evo Banco reduced its losses by 30.2%, to €7.4 million, and Credit Suisse AG S.E. reduced its losses by 1.7%, to €5.07 million.

Deutsche Bank España and Banco Occidental, both of which reported a profit in the first half of last year, also posted losses.

In particular, Deutsche Bank España lost €5.2 million from the beginning of the year to June, compared with a profit of €5.6 million a year earlier, while Banco Occidental lost €3,000, compared with a net profit of €1,000 a year earlier.

Credit Suisse Bank (Europe) and Miralta Finance Bank presented their individual financial statements to the Bank of Spain for the first time, with losses of €15 million and €1.85 million euros, respectively.

Europa Press reported that Banco de Depósitos, Banco Alcalá, Wealthprivat Bank, Banco Pichincha and Andbank España, which recorded losses a year ago, entered into profit in the first half of 2022.

Andbank España earned €2.13 million until June, Banco Pichincha earned €827,000 and Wealthprivat Bank earned €150,000.

The profit amounted to €46,000 for Banco de Depósitos and €5,000 for Banco de Alcalá.

Liberbank, which was on the list of money-losing banks in Spain a year ago, has legally disappeared following its integration into Unicaja Banco.

Original Story: Euroweekly News |  Matthew Roscoe 
Photo: Bank of Spain
Edition: Prime Yield

Non-performing loans (NPL) granted by all credit institutions in Spain to companies and individuals fell in June to 3.88%, marking a low since December 2008.

According to provisional data from the Bank of Spain, this is the first month in which the NPL ratio fell below 4% since January 2009.

The June figure is 30 basis points lower than in May (4.18%) and 52 basis points below the NPL ratio of a year ago, which stood at 4.4%.

The reduction in the private sector NPL ratio reflects both an increase in credit granted and a decrease in the volume of NPL.

Specifically, credit to the resident private sector increased by €12.44 billion in June to €1.234 trillion, while the total volume of non-performing loans fell by €3.148 billion to €47.916 billion (the lowest figure since August 2008).

Compared with June 2021, total lending increased by €2.075 billion and the doubtful balance decreased by €6.302 billion.

The figures include the methodological change in the classification of Financial Credit Establishments (EFCs), which since January 2014 are no longer considered within the category of credit institutions. Excluding the change, the NPL ratio would stand at 3.98%, since the credit balance was €1.2 trillion in June, 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 at 3.8%, compared with 4.08% in May and 4.34% a year earlier.

The NPL ratio of financial credit institutions stood at 6.22% in the sixth month of the year, down from 7.15% in the previous month and 6.51% in June 2021.

According to data from the Bank of Spain, the provisions of all credit institutions fell to €33.358 billion euros in June, down €2.033 billion euros in the month and €6.310 billion euros in the year.

Original Story: Estrategias de Inversion | Europa Press 
Photo: Photo by Victor Iglesias from FreeImages
Edition & Translation: Prime Yield