Real Estate Debt Decreases To €41,000M

21 December 2015 – El Economista

The clean up of the financial institutions and the reactivation of the economy are leading to marked decreases in the banks’ real estate arrears. At the end of September, loans granted to property developers had decreased to €41,621 million, a figure that has not been seen since the middle of 2010, when the process to restructure the sector began with the merger of the majority of the saving banks.

In just nine months, the volume of insolvencies relating to property has reduced by almost €13,000 million and the default rate has fallen to 30.6%.

Some of the decrease is due to the sale of unpaid loans that several entities have been carrying out to reduce their non-performing assets. These portfolios have been acquired by investment funds with significant discounts on their nominal values, with the hope of recovering the money and, thus, generating sizeable profits. Another factor that has reduced the amount of property developer debt is the exchange of debt for homes and land by the banks to lighten customer charges and to collect a portion of the loans granted.

Since the outbreak of the crisis, real estate financing has been weighing down on the Spanish financial sector. The number of insolvencies peaked in 2013, at €70,000 million, excluding the volume of loans transferred to Sareb by the entities that received state aid.

According to the data published on Friday, another one of the sectors hardest hit by the crisis, construction, has also been experiencing a significant decrease in its defaulting customers. After decreasing by €3,000 million this year, they now amount to €13,300 million, also returning to 2010 levels, and with a default rate of less than 30%.

The decrease in the default rate is happening in all of the production sectors, as well as in the mortgage sector. As a result, the total volume of unpaid loans being financed by the banks, savings banks and credit cooperatives decreased to €136,000 million in October, a volume similar to that recorded at the end of 2011. In nine months, this amount has decreased by €31,000 million. The default rate of the system as a whole has reduced to 10.6%, its lowest level since 2013, just after the European bailout.

The volume of loans granted by the banks, savings banks and credit cooperatives decreased by 3.5% between October 2014 and the same month this year, according to data published by the Bank of Spain.

The volume of financing granted to companies and families increased to just over €1.2 billion.

Original story: El Economista (by Fernando Tadeo)

Translation: Carmel Drake