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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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