RE Default Rates Closed 2015 At Lowest Levels Since Jun ’12

21 March 2016 – Expansión

There was a significant decrease in the default rate of both property developers and individual mortgage borrowers last year.

Defaulted payments by real estate developers…are diminishing. Last year, the default rate of this segment fell by almost nine percentage points, to close the year at 27.5%. That was the lowest level since June 2012, when the ratio stood at 27.4%.

Since the peak of 38% in December 2013, the ratio of doubtful real estate loans has reduced by almost 11 basis points, and the volume of non-performing assets has decreased by almost €47,800 million. This decrease is explained less by recoveries and more by the sale of (provisioned) non-performing loan portfolios to opportunistic funds, as well as the multi-million exchanges of debt for assets, which have decreased the default rate in exchange for filling the banks’ balance sheets with property.

Also, during Q4 2015, financing to property developers experienced a slow and steady decline, indicating the first signs of a slow down, decreasing by just half a percentage point since September. Nevertheless, it is worth noting that the property loan balance now stands at €135,190 million, well below the peak of €324,439 million it reached in 2009.

Improvements in mortgages

Another segment that registered some improvement in credit quality in 2015 was that of mortgages for the acquisition of homes by individuals. That default rate decreased by almost one percentage point, to close the year at 4.8%.

This decline occurred despite the fact that loans continued to decrease during the year, by 3.8%. Since the peaks of 2010, the total mortgage balance has decreased by €101,193 million to its current level of €531,256 million.

Stagnation in January

With respect to the general default rate in the sector, which stood at 10.1% at the end of 2015, having decreased by 2.5 p.p. during the year, the Bank of Spain released the data for the beginning of 2016 on Friday. In January, the decrease in the default ratio came to a halt and the default rate stagnated.

During the month, the total loan balance decreased by €8,472 million, whilst the doubtful asset balance decreased by €903 million.

Original story: Expansión (by M. Romani)

Translation: Carmel Drake