Spanish Banks’ Q4 Results Show Demand For Loans Picking Up

2 February 2015 – WSJ

Two Spanish lenders, Caixabank SA and Banco Popular Español SA, reported fourth-quarter results on Friday that showed an uptick in demand for loans as the country chugs toward economic recovery.

Caixabank and Banco Popular said new loans were up in the fourth quarter compared with a year earlier, led by demand from businesses in particular, while mortgage lending was less vibrant. That trend was in line with results reported on Thursday by Banco de Sabadell SA.

Still, an increase in loan issuance wasn’t enough to offset the wave of individuals and businesses that are focused on paying down their existing debts, rather than taking on new debt. The amount Caixabank lent to customers in 2014 fell nearly 5% compared with the previous year and 0.5% at Banco Popular during the same period.

Caixabank Chief Executive Gonzalo Gortázar said new loan production in 2015, particularly to businesses, is likely to be strong enough to outpace the rate at which borrowers are paying off debts. Caixabank is likely to see its total loan portfolio grow around 7% in 2015, Mr. Gortázar said at a news conference, buoyed by the acquisition of Barclays PLC’s retail banking division in Spain, which closed on Jan. 2.

“Credit is returning to the economy,” Mr. Gortázar said. “New loan production is accelerating each quarter.”

Overall in the Spanish banking system, he said, total loan volumes should stop declining and stabilize around zero or 1%.

Sabadell executives said Thursday they anticipated a turnaround this year at their bank as well, with growth in the total loan book of around 1%-2% thanks to an increase in loans to small and medium-size businesses.

The “deleveraging” process in Spain has weakened lenders’ returns in recent quarters and makes analysts anxious about future growth. But bank executives acknowledge that it is healthy for individuals and businesses in Spain to slough off layers of debt accumulated during a frenzied building boom, which went bust starting in 2008 and sunk the country into several years of recession.

Caixabank reported net profit of €154 million ($174.3 million) in the fourth quarter of 2014. The bank said it had restated its 2013 accounts because of a contribution to Spain’s deposit guarantee fund, leading to a €142 million loss in the fourth quarter of 2013.

The Barcelona-based bank said fourth-quarter net interest income was €1.08 billion compared with €1.02 billion a year earlier. That was in line with analysts’ expectations.

Caixabank shares were down 2% in early afternoon trading in Madrid. Credit Suisse Group AG analysts said in a research report that the bank’s results were “mixed,” with weak trading income and higher-than expected impairments, including €195 million of early retirement charges.

Banco Popular, Spain’s sixth largest bank by market value, reported net profit of €99.4 million ($112.5 million) in the fourth quarter of 2014, up from €79.6 million a year earlier. The bank said fourth-quarter net interest income was €570.9 million compared with €581.5 million a year earlier. Banco Popular shares were up 0.7%.

Net interest income, a key driver of revenue for retail banks like Caixabank, is the difference between how much a bank earns on clients’ loans and how much it pays clients for their deposits.

Separately, Bankia SA has postponed its 2014 annual results presentation while Spain’s bank-bailout fund, known as Frob, weighs how potential litigation expenses should be divided between the bailed-out bank and its parent company, a Bankia spokesman said Friday.

Bankia, which Spain spent €22.4 billion in European Union funds to clean up in 2012 following a real-estate bust, was set to report earnings on Feb. 2.

Spain’s bank-bailout fund Frob still owns the majority of Bankia. The bailed-out bank, Spain’s fourth-largest by market value, is plagued by lawsuits triggered by fraud allegations related to its 2011 initial public offering. Investors in the IPO suffered steep losses when Bankia was later nationalized. Executives at Bankia at the time say the share sale was above board.

The Bankia spokesman said it is unclear when the bank’s 2014 results will be rescheduled.

Original story: WSJ (by Jeannette Neumann)

Edited by: Carmel Drake