Refinancing Of Loans To Households Grew By 5% In Six Months

1 September 2015 – Expansión

The economy is showing clear signs of recovery, but not without the exit from crisis being widespread among the citizens. In the six months, the bank has brought an increase of 5.06% through individual refinancing operations, a sure sign that the hardships of many families still force to redesign their debt so they can repay it rather than face default.

The size of renegotiated loans to individuals climbed from 76,071,000 at the end of 2014 to 79,919,000 in June, as specified by the banks to the National Securities Market Commission (CNMV) in response to the demand for transparency imposed by the Bank of Spain.

Almost all institutions also acknowledge increase in the number of restructured operations, at rates ranging between 1.25% and 16.43%; except Santander, BBVA and Abanca, whose censuses fall and drag the total count of modified debts from 3.71 to 3,630,000 instead of escalating.

In late 2012 the Bank of Spain imposed an obligation to detail the refinancing so to address the malpractice of disguising under color of healthy loans the insolvent ones and draw from under rugs problematic exposures, when market health sector was questioned for fear of its balance sheets being flooded by toxic operations.

In that first calculation, the sector stripped off 211,273,000 euros in refinanced and restructured transactions, amount equivalent to 1.57% of the outstanding/pending credit with only one-third belonging to households and two-thirds to the companies, hindered mainly by the real estate crash.

Construction generates only 29%

Three years later the situation has changed considerably. The restructured debt has reduced to 196,109.45 million, equal to less than 10% of the financed stock, with the builder and property development being responsible for only 28.87% of global exposure.

The construction lost market share abruptly, at the beginning of the year, with the cleaning of SAREB and severe requirements in sanitation/stabilization, which helped to discover refinancing transactions and reclassify them as defaulting – once protected against severe losses with endowments, they speed up the recognition of defaults.

The trend continues with this inertia. In the first six months of the year the portfolio readjusted from financing to construction and real estate fell by 10.42%, to 35,966,000; and the number of operations went from 60,874 to 59,613.

A situation that ironically contrasts with the upturn in families, now responsible for nearly four out of ten euros of refinancing operations. Despite the demonization of the practice for fear that it helps disguising losses, redesigning debt is a common banking remedy for giving customer payment opportunities when economic conditions worsen and to avoid much distress in the case of not returning the credit or, in the most dramatic cases, losing home.

The restructuring of mortgages, estimated in millions of cases, has contributed to their delinquency being limited to 6% even with unemployment soaring up to 25% of the population and after enduring seven years of crisis. It is an effort intensified these last years, adding to the portfolio of solutions extensions of maturities, deficiencies in rates or fees, acquittances, while the banks kept accumulating provisions .

If in 2012 51.4% of the balance was delinquent, with endowments covering only 15-18% of the entire refinanced portfolio; now 22% are protected, with non-performing exposures limited to 44%.

The effort to shield the impaired balance allows sector to face the opening of the credit tap more willingly. Now that defaults begin to decline and the economy has put an end to job losses, banks have turned to financing.

The new concession to households and companies amounted to 144,615,000 in the first seven months of the year, resulting in a year increase of 21.4%. It remains insufficient for the total stock to increase, but it has taken a growing rate of acceleration: rebounds progression in companies, from 9.6% in June to 14.4% in July, going from 33% to 37.6% in the new credit to households.

The battle for funding favours new reductions in prices of loans: the APR on new mortgages slipped down from 2.50% to 2.43% from June to July, and in business loans above one million euros from 2.41% to 2.02%, in lesser amounts it rose from 2.53% to 2.72%, according to the data released yesterday by the Bank of Spain.

Original story: Expansión

Translation: Lee La