Bankinter & Popular – Two Sides Of The Same Coin

8 March 2016 – Expansión

The banks’ default rates  are decreasing and their coverage ratios are increasing. Nevertheless, and although the sector is well provisioned in general, experts point out that not all of the entities are in the same boat.

The long awaited publication of the new Circular by the Bank of Spain regarding provisions, which may now be delayed until September, has brought back to the forefront a topic that Spain’s banks were anxious to leave behind: is the cumulative provision level sufficient?

Most of the experts agree that it is, at least in aggregate – overall, Spain’s banks are well provisioned. But there are important nuances, because not all of the entities are in the same situation and we cannot yet completely rule out one-off surprises, which may require further efforts to strengthen balance sheets. (…).

Individual cases

(…) The experts also note that not all of the banks are the same in terms of their default rates and provisions, something that is clear from looking at the delinquency, coverage and foreclosed asset data as at year end. In terms of loan default rates, Popular and Bankinter represent the two sides of the same coin.

The bank chaired by María Dolores Dancausa continues to be the least delinquent, as it has been throughout the crisis. It closed 2015 with a defalut ratio of 4.13%, less than half the sector average.

The entity has properties amounting to just €531 million on its balance sheet and, moreover, together with Bankia, is the only entity that managed to reduce its cumulative stock during the year. On this basis, analysts agree that the relatively low levels of coverage are adequate for its risk profile.

Meanwhile, Popular finds itself at the other end of the spectrum. Its default rate at the end of the year was the highest of all the listed banks, at 12.86%, and its coverage rate was 42.5%, ten points below the average. The bank chaired by Ángel Ron has property amounting to €14,629 million on the balance sheet, exceeded only by BBVA, which has just devoured CatalunyaBanc’s properties (those that were not transferred to Sareb).

In fact, Popular is the bank that analysts cite when warning about possible exceptions to the relative calm on the subject of provisions. In this way, Nuria Álvarez, a banking analyst at Renta 4 says that “we cannot rule out the fact that some entities will still have to make a significant effort, as may be the case of Popular”. (…).

The economist Carmelo Tajadura shares this view, confirming that “Popular is the weakest of the largest six banks”. This expert says that the bank led by Francisco Gómez has made significant efforts to clean up its balance sheet in recent years, but despite that, it still needs to continuing making provisions, without lowering the pace. Tajadura is certain that “Popular has left the worst behind, but it still has a lot to do”. (…).

Popular is very clear that its priority….is to aggressively reduce the volume of non-productive assets on its balance sheet. The bank has set itself the objective of freeing up at least €4,000 million of these assets this year, although some sources raise that figure to €8,000 million (25% of its total stock).

(…). Besides this forecast reduction, announced in its results, Popular is “working on the possible creation of an SPV to which it would transfer between €4,000 million and €5,000 million of assets and then sell a majority stake in that vehicle to institutional investors”.

Problem entities in the wider market

Beyond the large listed banks, the analysts confirm that there are other entities with more problems, including Abanca…because of the quantity of deferred tax assets it has accumulated…”. Other entities flagged as the weakest when it comes to measuring balance sheet quality are Liberbank, Cajamar and BMN.

Original story: Expansión (by Michela Romani)

Translation: Carmel Drake