21 January 2018 – Efe Empresas
According to Joaquín Robles, analyst at XTB, speaking in an interview with Efe, the banks have waited “for several years for a recovery in house prices” to reduce their exposure to property.
The good health that the real estate sector is currently enjoying is reflected in a study from BBVA Research, which shows that new home prices are expected to rise by 4.9% in 2018. The banking institutions have also decided to reduce their real estate weight due to the changes that have been introduced to international and Spanish accounting legislation.
The new regulations require entities to increase their provisions using own funds to strengthen their capital ratios, with the aim of being more solvent in the event of another possible market crash in the future.
These modifications “will translate into an increase in provisions of 13% on average for the large European banks”, said Robles.
Real estate sales is a correct strategy for the banks
The sale of real estate assets is “a correct strategy from the point of view of banking management”, says the Partner responsible for the Financial Sector at KPMG in EMA and the Head Partner of KPMG Abogados, Javier Uría.
In fact, “the divestment of real estate assets that is happening will result in the strengthening of the sector”, he added.
Spanish banks have reduced their real estate assets in a greater proportion than other European banks, as a result of the effects of the economic crisis and the evolution of the economy.
One example of that is BBVA, which decided to reduce its exposure to property to a minimum, with the sale in November of its Spanish real estate arm to the investment fund Cerberus for €4 billion.
That operation was “hugely important” for BBVA, since it reduced its exposure “to an activity that is unrelated to its core business”, according to comments made at the time by the CEO of the entity, Carlos Torres Vila.
Uría said that Sareb has made an important contribution to this process.
That company, also known as the “bad bank”, was created with the objective of reducing the risks of the financial institutions and orderly liquidating the problem real estate assets within a maximum period of 15 years.
Sareb received almost 200,000 assets worth €50.781 billion, of which 80% were financial assets and 20% were real estate assets.
The income statements of the banking entities will be affected by their real estate divestments in a positive way, since they will result in lower requirements in terms of capital and provisions, as well as in a “reduction in the costs associated with the ownership of these types of assets”, concluded Uría.
Original story: Efe Empresas (by Javier Melguizo)
Translation: Carmel Drake