Moody’s: Popular Cannot Afford To Wait To Clean Up Its BS

29 May 2017 – Expansión

The credit rating agency Moody’s considers that Banco Popular does not have time to wait for the recovery in the real estate sector in Spain to have a positive impact on the quality of the real estate assets in its portfolio.

In fact, the rating agency considers that Popular’s solvency problems mean that it must reduce the non-performing assets that are weighing down on its balance sheet in an “accelerated” way, without allowing the entity to fully benefit from the reactivation of the real estate market.

“The recovery in the real estate market is a positive factor for the banks that are most exposed to the real estate sector”, said María Viñuela, Deputy Vice-President and analyst at Moody’s.

Nevertheless, Viñuela understands that the recovery in the housing market will materialise “over time”, which is why she reiterates that Popular is “under pressure” to improve its solvency and accelerate the reduction of its non-performing assets within a “shorter” time frame.

The entity chaired by Emilio Saracho (pictured above), whose rating Moody’s downgraded to B1 in April, has non-performing assets amounting to €37,000 million – 25% of the total – on its balance sheet, most of which are related to the real estate sector, which is one of the major factors that impinges on its value in a possible corporate operation.

The bank, which is currently analysing all of the strategic options open to it, still has more than two weeks to decide whether to go ahead with the sales process in which it has been immersed since 16 May, given that a deadline of 10 June has been set for taking a decision.

For the time being, Popular has not received any specific firm offers, nor has it assumed any commitments, which means that it has not completely ruled out a capital increase, as Saracho stated during the most recent General Shareholders’ Meeting.

Amongst Popular’s strengths that may attract its buyers include its franchise and its SME business, where the entity is the leader of the sector, with a market share of almost 18%.

Original story: Expansión

Translation: Carmel Drake