Bad Debt Ratios for Developers and Construction Companies Fall in June

4 October 2018

The non-performing loan ratio for credit granted to the real estate development fell to 11.3% in June, compared to 21.5% a year earlier, a low for the series. The total outstanding balance stood at 11.405 billion euros, according to data provided by the Spanish Mortgage Association (AHE).

The bad debt ratio for the construction sector also fell by more than ten points in one year, reaching 17.5% at the end of last June, with outstanding debts of €5.104 billion, though the index “remains at relatively high levels,” the AHE warned.

The improvement in the two indicators is largely due to the commitment of Spanish financial institutions to reducing the weight of bad debts on their balance sheets, which “is paying off,” the association announced.

“The favourable evolution of macroeconomic fundamentals, coupled with the intense dedication of the financial institutions regarding the restructuring and disinvestment of their portfolios of bad debts, suggests that we are entering a new phase, where a consolidation of growth and recovery seems increasingly evident,” the Spanish Mortgage Association added.

According to the AHE’s forecasts, improvements in capital ratios and the profitability of financial institutions as they reduce their exposure to the unproductive assets will allow them to increase commercial lending.

“It is to be expected that, at least in the medium term, loan activity will continue to be stimulated, and we will continue to see improvement to the financial system,” the AHE noted, recalling that the DBRS rating agency recently stated that Spain’s deposit institutions had reduced the weight of foreclosed assets from €83 billion in 2011 to €16.9 billion at the end of June, while the weight of non-performing assets was reduced from €232 billion to €75 billion.

Original Story: Europapress

Translation: Richard Turner

58