Liberbank, Sabadell & Bankia Lead Sales Of Non-Performing Assets
4 November 2016 – Expansión
Significant reductions / the three entities’ doubtful loan and foreclosed real estate asset balances decreased by between 15% and 19% during the first half of the year.
Spain’s banks are beginning to heed the recommendations of the ECB, which has turned the divestment of non-productive assets into its battle horse. To this end, the European banking supervisor has urged those entities with the worst default ratios to present clear and defined strategies for reducing the perimeters of their balance sheets. The body has even advised the entities to link the bonuses of their managers to decreases in non-performing loan balances.
The pace of divestment of these assets, which generate high costs and zero revenues, is picking up speed. A recent report about the banking sector, published by the broker Ahorro Corporación, reveals the names of the leading entities in this regard: Liberbank, Sabadell and Bankia. According to the data compiled between January and June, they decreased their problem assets by 19.2%, 15.7% and 15%, respectively. Not all of the entities supply this information to the market and it is hard to make comparisons between entities. “All of the listed entities reported that negative net inflows of non-performing debt are widespread, although they are all in different stages of the process to normalise the cost of the risk”, explained the firm.
The impact of the Bank of Spain’s new accounting circular, which has just entered into force, is aimed precisely at strengthening provisions against foreclosed properties and plots of land following the burst of the property bubble. It mainly affects Sabadell and Liberbank.
The Bank of Spain’s Financial Stability Report, published yesterday, reveals some success in the sector in this regard. According to its data, doubtful assets in domestic banking businesses decreased by 18.2% between June 2015 and June 2016. The cumulative decrease since December 2013 amounts to 38%.
Despite the dynamism in the real estate market, foreclosed assets (properties handed over to pay off debt, premises, land, etc.) have recently experienced a slow down in the rate of sales. Between 2011 and 2013, the decrease was boosted by bulky sales from Sareb, the bad bank. That entity has now taken over the baton in the segment of portfolio sales.
Overall, the perimeter of non-performing assets decreased by 12% YoY and now amounts to €199,000 million. Refinanced and restructured loans decreased by 12.1% in one year and by 26% since March 2014.
Nevertheless, non-performing assets still account for 15% of Spanish banks’ balance sheets, whereas in the UK and Germany, they account for just 3%, according to a study by AFI. If they were all sold at once, the additional return would allow them to cover the cost of capital, which is what shareholders want the most.
The average ROE of Spain’s banks is 6.1%, according to data from the Bank of Spain as at 30 June 2016. That figure is slightly higher than the European average. Nevertheless, the cost of capital stands at around 8%-9%. (…).
Original story: Expansión (by R. Lander)
Translation: Carmel Drake