A €6 Bn Worth of Dwellings, Land & Other Properties Adds to REO Volume in Banks

9/09/2014 – Expansion

Contractions in lending and banking investment in the real estate market caused serious digestion problems to Spanish entities. The total volume of the homes, offices, plots and other types of properties in the banks balance sheets keeps on growing in spite of efforts to shed the foreclosures as fast as possible. After the first six months of the year, REO assets in 13 principal Spanish entities represented €90.2 billion, by €6.1 billion more than at the end of 2013. The number is also higher than in 2011, registered just before the toxic asset transfers to Sareb, Spains bad bank.

The €90.2 billion is the gross carrying amount in the balance sheets of the entities. However, they have provisions, value adjustments and other coverages on these properties of a total of €44.2 billion (net €46 billion) with an increase of €3.7 billion at the end of 2013.

The most cumbersome asset is land as this asset rarely finds a buyer and therefore it does not compensate for the loans granted for its purchase. Presently, Spanish entities hold over €35 billion in plots provisioned in 59.4%. In the first half of the year, another €1.45 billion worth arrived at their balance sheets.

Two other affluent sources of repossessions for the banks are finished buildings proceeding from developer financing and foreclosed or transferred through in lieu payment houses whose owners cannot pay-off their mortgages. Each of the sources contributed with €1.4 billion volume in H1.

La Caixa and Popular lead in the foreclosure volume ranking, followed by BBVA and Banco Sabadell. Moreover, the two first received the biggest additional REO load in the first half of 2014, both in gross and net terms. The Catalonian entity, though, has got better coverage for its properties.

Bankinter still owns the smallest number of respossessed units. Whereas BFA-Bankia, NCG Banco, Catalunya Banc, Liberbank and BMN shed great majority of their toxic assets by transferring them to Sareb but default on their mortgages triggers more foreclosures or in lieu payments, boosting their repossession rates.

Foreclosures For Nonpayment

Assets repossessed due to lack of payment and loans for construction and developments classified as doubtful or sub-performing constitute the potentially risky part of the real estate exposure. These toxic assets melted by €300 million in the first half to €159.3 billion. However, also the provision volume intended to cover them went down from €77.5 to 76.2 billion.

The only positive numbers have been recorded in the developer loan segment which includes non-, sub- and fully performing credits. The total exposure to them has declined from €101.87 to 92.68 billion.

Performing loans in the real estate sector shrank from €26.3 to 23.6 billion. Even though the risk continues to decrease, the REO volume still upsets the Spanish banks.


Original article: Expansión (by Miguel Jimenez)

Translation: AURA REE