22 September 2015 – Expansión
The decline in the default rate is also affecting the sector that was hardest hit by the crisis: real estate.
Data published last week by the Bank of Spain relating to the end of June, shows that the default rate has reduced significantly on loans to developers and construction companies – which are nevertheless still the most delinquent borrowers in the system – as well as on mortgages granted to individuals.
The default rate of real estate developers amounted to 32.12% in June, which represented a decrease of 2.6 p.p. during the second quarter. In June 2014, that ratio amounted to 38%. Banks’ exposure to property also continued to decrease: the volume of loans at the end of June amounted to €138,329 million, after a decrease of 5.6% in just one quarter. It is worth noting that the total loan balance reached historical highs of €324,664 million in June 2009.
It was then that the banks started to reduce their exposure to the sector, by closing off the tap completely to anything that was remotely related to brick. Moreover, since then, many debts have been exchanged for assets, i.e. property or land, which has turned the banks into the largest estate agent in Spain.
A similar trend is being observed in the construction sector. The default rate decreased to 29.8% in June, dropping by 2.3 p.p. in just one quarter, whilst the loan balance amounted to €46,090 million, having decreased by 4.1% during the quarter. At the height of the real estate bubble, bank financing to this sector peaked at €153,453 million.
Spanish banks have always argued that, despite the harsh crisis that the country suffered, mortgages to individuals have resisted the onslaught relatively well. The delinquency rate in this segment only exceeded 6% in two quarters: Q1 and Q2 2014. Since then, it has followed a downward trend to reach 5.2% in June 2015.
The total residential mortgage loan balance amounted to €542,422 million at the end of H1 2015, whereby accelerating its YoY rate of decline to 5.4%. Although mortgages have become a central part of banks’ commercial strategy once again, especially as a tool for securing customer loyalty, the new loans being granted do not yet offset the repayments on the existing ones.
Original story: Expansión (by M. Romani)
Translation: Carmel Drake