The 6 Largest Banks Reduce Toxic Assets By 5% To €120,000M

10 November 2015 – El Economista

Last week, in its bi-annual stability report, the Bank of Spain warned about the hindrance that the large volume of toxic assets still on banks’ balance sheets means for the financial sector. The national supervisor considers that these kinds of assets are preventing the sector from improving its profitability given the significant costs associated with them, at a time when revenues are still decreasing due to the ultra-low interest rates and the scarce lending activity.

The Bank of Spain estimates that around €224,000 million non-performing assets are still held on banks’ balance sheets in the system as a whole. Of that amount, more than half are held by the six main banking groups, one of which, Bankia, transferred the majority of its foreclosed assets and property developer loans to Sareb in 2012, as part of the rescue plan. At the end of September, the six entities accumulated €120,443 million of non-performing assets in gross terms, excluding provisions for impairment. In nine months, that figure decreased by just 5.39%.

A recent report from Analistas Financieros Internacional (AFI) said that the profitability of the sector would double with the divestment of these kinds of assets, and so it recommended a mass sale in the short term. The entities have already put sizeable packages on the market as they seek to reduce their balance sheets’ exposure to the real estate sector, but some operations have been delayed due to the instability generated by the (political) situation in Cataluña and the approaching general election. Some of those affected have included the block sale of all of Bankia’s properties and the sale of a portfolio of homes by Popular for around €450 million.

Loans to property developers

The decrease in non-performing assets has been driven by a 19.1% drop in loans to property developers, as a result of maturities, the sale of certain lots, discounts on debt, exchanges for properties and the extremely low level of activity. By September, the six entities had cut their financing to the real estate sector by €52,500 million, and for the first time, the amount was lower than the gross value of the properties foreclosed due to non-payment. Those now total more than €67,000 million, as a result of debt conversion processes undertaken by both companies and by individuals, which have driven up the volume by almost 9% since the beginning of the year.

The only large entity that has managed to reduce its portfolio of foreclosed assets is Bankia, but it is worth noting that it conducted a significant clean-up of its balance sheet with a view to the transfer of its assets to Sareb. The properties held by the nationalised bank decreased by 4.11%.

It is also worth noting the 17.27% increase that BBVA has experienced in this respect, primarily as a result of the absorption of CatalunyaCaixa. In this case, the integration of that entity means that the group led by Francisco González is the only one that registered an increase in the volume of loans to property developers, up by 7%. (…).

Original story: El Economista (by Fernando Tadeo)

Translation: Carmel Drake

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