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Bankia & Santander Lead Decrease In Mortgage Default Rate

12 September 2016 – El Economista

The economic recovery is substantially easing the burden of provisions that the banks are making against their non-performing loans. The volume of bad debts have been decreasing gradually over the last few months, thanks to the overall improvement in the financial circumstances of families and companies.

An important part of this respite is coming from the mortgage segment. Families now hold financing to acquire homes amounting to just over €525,000 million in total. Unemployment, which wrought havoc during the crisis, had increased the default rate to more than 6%. But that trend changed at the end of 2014. Since then, the default rate of these types of loans has decreased to 4.7%, on average. In other words, the volume of mortgages with delayed repayments has decreased to €25,000 million.

Not all of the banks have managed to benefit in the same way from the improvement in Spaniards’ fortunes. Bankia and Santander are the entities that have benefitted the most over the last year. Between June 2015 and June 2016, Bankia’s default rate decreased by almost a quarter, from 6.76% to 5.02%, and by nearly a half since its historical peak in 2014. Even so, the absolute percentage of the nationalised group still exceeds the system average.

The decrease in Bankia’s default rate has come at a time when the bank is significantly reducing the volume of loans it grants to acquire homes. In the case of Bankia, the cut in the volume of financing is similar to that recorded in the sector. It has decreased by 4.3% in twelve months (…).

Since 2012, the nationalised group’s strategy has involved rebalancing its credit portfolio, with a drop in mortgages and an increase in loans to SMEs and individuals.

In the case of Santander, the default rate has decreased by 0.81 percentage points to 4.59% over the last twelve months, allowing the bank to maintain a ratio that it slightly lower than that of its rivals. In 2013, the Cantabrian entity’s default rate (6.7%) exceeded the sector average. Since then, the decrease has been gradual.

The group chaired by Ana Botín has also reduced its portfolio of doubtful debts, whilst its volume of mortgages has decreased by 3.4%. In fact, of the major entities that have published their data so far, Santander and Bankia are the ones that have reported the most significant decrease in financing.

Three banks, BBVA, CaixaBank and Ibercaja, have gone against the trend in the sector, suffering slight increases in their respective default rates. The first has been hurt by the incorporation of Catalunya Banc in April 2015, which is leading to an increase in its impairments, even through the operation to acquire the entity excluded the most harmful mortgages. They were transferred to a fund owned by Blackstone with certain government guarantees provided by the public rescue fund (Frob).

Despite the increases, CaixaBank and Ibercaja have two of the lowest default rates in the sector. In both cases, the default rate of home loans to individuals fell below 4% at the end of June this year.

For most entities, the volume of loans are falling at rate of less than 2%, as a consequence of the boost in new business and the open war to secure clients. At Unicaja, the decrease has been less than 1%.

Market share

BBVA is still the leader of this segment, with more than €89,437 million loans granted to households to buy a home, representing a market share of 17% (…). It is followed by CaixaBank, with financing lines amounting to €88,557 million (17%) and Bankia with €62,200 million (12%). Santander is ranked fourth, accounting for less than 10% of the mortgage market. (…).

The main entities have a combined balance of foreclosed homes amounting to more than €17,000 million. The bank that holds the largest portfolio of foreclosed homes is BBVA, with almost €4,500 million. CaixaBank is ranked in second place, with more than €2,762 million, whilst Bankia, in third place, has €2,700 million. (…).

Original story: El Economista (by Fernando Tadeo)

Translation: Carmel Drake