Tag: accounting circular

Sareb Unlikely To Distribute Any Profits To Its Shareholders

30 December 2016 – Expansión

Accounting circular / The Ministry of Finance has softened its demands on Sareb. In exchange, the bad bank’s owners, namely, the State and Spain’s largest banks, will not receive anything for their investments in the bad bank, for at least the next few years.

The Ministry of Finance has softened the situation facing the shareholders of Sareb (the most important of which is the State, through the Frob), by not forcing it to recognise latent losses in its income statement, like it has been obliged to do until now. In exchange, the Ministry has shut down the possibility that these shareholders will receive any results from their investment, even if the company does manage to generate profits at some point.

The harsh situation created by the accounting circular that the Bank of Spain designed for Sareb has barely lasted a year. According to that legislation, Sareb was obliged, within a period of two years, to reappraise all of the assets on its balance sheet (which proceeded from the real estate portfolios of the former savings banks that received public aid) and recognise the latent losses in the income statement each year, given that the price at which it bought those assets was significantly higher than their market prices.

The reality of all of this was seen last year when, in order to avoid near bankruptcy, the bad bank reduced its capital to zero and converted a substantial part of its subordinated debt (€2,171 million) into capital, to offset some of the losses for the year and restore the equity balance. Sareb recognised provisions amounting to €3,900 million in 2015 and recorded capital of €953 million (2% of the balance sheet) and subordinated debt of €1,429 million.

It was expected that something similar would happen this year, although with a less intense effect, given that most of the assets were reappraised in 2015, and that the capital balance would again be reduced and more subordinated debt would be converted into capital.

But to avoid this, the Ministry of Finance has made two significant changes. The first is that Sareb must continue valuing its assets at market prices, but if those values result in the creation of latent losses, then rather than recognise them in the income statement, they should be recorded in the equity statement, whereby reducing the company’s share capital. In parallel, and to avoid the company having to file for insolvency due to an excessive reduction of its capital, Sareb may also benefit from the exception afforded to real estate companies at the height of the crisis, which exempted them from having to comply with a certain relationship between the value of their assets and their own funds. (…).

Two conditions

In exchange for these concessions, which will undoubtedly give Sareb some much needed breathing room, the new legislation from the Ministry of Finance establishes two conditions. The first is that when an asset is sold for below its acquisition price, the real loss must be recognised in the income statement; and the second is that if Sareb generates profits in the future, then whilst the equity account exists in which the latent losses are being reflected, then all of the profits earned must be applied to that account. That means that, in all likelihood, Sareb’s shareholders (…) will not receive anything for their investments in the company over the next few years. And it is reasonable to think that they will never receive anything, given Sareb’s asset composition.

This is the first time that this fact has ever been acknowledged, more or less explicitly. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Liberbank, Sabadell & Bankia Lead Sales Of Non-Performing Assets

4 November 2016 – Expansión

Significant reductions / the three entities’ doubtful loan and foreclosed real estate asset balances decreased by between 15% and 19% during the first half of the year.

Spain’s banks are beginning to heed the recommendations of the ECB, which has turned the divestment of non-productive assets into its battle horse. To this end, the European banking supervisor has urged those entities with the worst default ratios to present clear and defined strategies for reducing the perimeters of their balance sheets. The body has even advised the entities to link the bonuses of their managers to decreases in non-performing loan balances.

The pace of divestment of these assets, which generate high costs and zero revenues, is picking up speed. A recent report about the banking sector, published by the broker Ahorro Corporación, reveals the names of the leading entities in this regard: Liberbank, Sabadell and Bankia. According to the data compiled between January and June, they decreased their problem assets by 19.2%, 15.7% and 15%, respectively. Not all of the entities supply this information to the market and it is hard to make comparisons between entities. “All of the listed entities reported that negative net inflows of non-performing debt are widespread, although they are all in different stages of the process to normalise the cost of the risk”, explained the firm.

The impact of the Bank of Spain’s new accounting circular, which has just entered into force, is aimed precisely at strengthening provisions against foreclosed properties and plots of land following the burst of the property bubble. It mainly affects Sabadell and Liberbank.

The Bank of Spain’s Financial Stability Report, published yesterday, reveals some success in the sector in this regard. According to its data, doubtful assets in domestic banking businesses decreased by 18.2% between June 2015 and June 2016. The cumulative decrease since December 2013 amounts to 38%.

Despite the dynamism in the real estate market, foreclosed assets (properties handed over to pay off debt, premises, land, etc.) have recently experienced a slow down in the rate of sales. Between 2011 and 2013, the decrease was boosted by bulky sales from Sareb, the bad bank. That entity has now taken over the baton in the segment of portfolio sales.

Overall, the perimeter of non-performing assets decreased by 12% YoY and now amounts to €199,000 million. Refinanced and restructured loans decreased by 12.1% in one year and by 26% since March 2014.

Nevertheless, non-performing assets still account for 15% of Spanish banks’ balance sheets, whereas in the UK and Germany, they account for just 3%, according to a study by AFI. If they were all sold at once, the additional return would allow them to cover the cost of capital, which is what shareholders want the most.

The average ROE of Spain’s banks is 6.1%, according to data from the Bank of Spain as at 30 June 2016. That figure is slightly higher than the European average. Nevertheless, the cost of capital stands at around 8%-9%. (…).

Original story: Expansión (by R. Lander)

Translation: Carmel Drake

Sareb Launches 4 New Commercial Campaigns

2 November 2016 – Cinco Días

Sareb is looking to capitalise on the final quarter of the year, typically a very busy time for real estate transactions and likely to be even more so in 2016, now that a Government has finally been formed after months of political deadlock and uncertainty.

Whilst a few weeks ago, the so-called bad bank launched Project Eloise, the sale of its largest asset portfolio to date, the firm is now preparing four new promotional campaigns to encourage the sale of its properties, focusing on: new homes, plots of land, rental properties and low priced assets.

The new commercial campaigns have been baptised as follows: “Casas de estreno”, “Suelo”, “Alquileres” and “Rebajas”, and their aim is “to complement the commercial and marketing initiatives” that Sareb has been carrying out through the four other commercial campaigns that it launched during the first six months of the year, according to a half yearly report that the company has just published.

Specifically, between January and June, Sareb launched the following campaigns: “Grandes rebajas”, through which it has generated sales of €15.6 million; “Casa Sareb”, containing residential homes, which has generated sales of €15.4 million; “Tu casa a toda costa”, focused on secondary residences, which was extended in July after it exceeded its sales target of €25 million; and “Madrid-Barcelona”, designed to offer exclusive homes for sale in Spain’s two largest capital cities, which has also exceeded its sales target, of €16 million.

The report about Sareb’s half yearly activity also highlights the commercial agreement that the bad bank has reached with the real estate portal Idealista to offer all of the properties that Sareb sells through the real estate platforms Haya Real Estate, Altamira, Servihabitat and Solvia, on a single website. By the end of June, the website was already displaying 90% of its supply.

Sareb has sold 8,930 properties during the first nine months of the year, up by 12% compared to the same period last year, although its revenues from those sales amount to just €2,270 million during YTD Sept 2016, down by 9.7% YoY. Following the blow dealt by the Bank of Spain’s new accounting circular, Sareb has just launched its largest portfolio for institutional clients: a package of loans secured by properties amounting to €1,000 million.

Original story: Cinco Días (by J. P. C.)

Translation: Carmel Drake

Bank Of Spain Puts Pressure On Banks To Accelerate Property Sales

7 September 2016 – Cinco Días

The Bank of Spain wants Spain’s financial institutions to speed up the sale of their foreclosed assets and get rid of their toxic assets as soon as possible. The supervisor has been unmoved by the banks’ requests to relax some of the interpretations of the accounting circular 4/2016, which comes into force in October, governing their provisions against properties. The banks still hold more than €84,000 million of foreclosed assets.

Spain’s banks are finalising the figures for the new provisions that they will have to make following the entry into force of accounting circular 4/2016 and in particular, its Annex IX, on 1 October, which modifies circular 4/2004 for credit institutions. Initially, the Bank of Spain said that this new standard would hardly affect the final calculation of the sector’s provisions this year, but the reality is somewhat different, at least for several institutions, according to financial sources.

The body led by Luis María Linde has tightened the provisions for foreclosed assets. This twist has forced several entities to make fresh efforts in terms of their provisions, which will be deducted from their income statements. In response, some of the financial institutions had asked the Bank of Spain, during meetings that they are holding regarding the application of this circular, to relax certain concepts and interpretations of the standard. But it seems that the national supervisor has been indifferent to these requests, according to sources in the sector.

Ultimately, the Bank of Spain wants to force the banks to accelerate their property sales and get rid of their real estate assets as quickly as possible. Sources in the sector say that this is the message that the supervisor has been communicating in its meetings with the banks.

Linde wants the sector to significantly reduce their assets, which amounted to more than €84,000 million at the end of 2015. Sources indicate that the Bank of Spain has not set a date for this reduction, but it seems to be clear from both the conversations and the regulations that it seeks to considerably reduce the figure over the next three years. The problem is that the foreclosed asset balance has increased quarter after quarter since the outbreak of the financial crisis in 2008, despite attempts by the sector to sell off properties at significant discounts.

In fact, the heavy weight that these foreclosed assets continue to represent on the balance sheets of Spain’s banks is one of the main criticisms levied by the European Central Bank and other international supervisors.

Over the last three years, the banks have accelerated the sale of these assets, but the incoming volumes still exceed those sales. In addition, the large speculative investment funds, which were previously committed to purchasing large packages of properties, have now reduced their operations, and some are even exiting from certain property purchase operations ahead of time as they are obtaining lower returns than expected, indicate sources at one major bank.

The new accounting circular not only affects the financial institutions, but also the partners that manage those properties, such as Altamira, Aliseda, etc. In the case of La Caixa, it affects its holding company, Criteria, which owns €2,600 million of foreclosed assets and CaixaBank, which holds another €7,122 million. The same thing has happened in the case of Bankia, with the circular affecting both the bank and its parent company BFA, even though that group transferred most of its foreclosed assets to Sareb.

The main domestic banks are racing against the clock to ensure that the Bank of Spain approves their internal risk coverage models, including foreclosed assets, before the end of December, which, according to several sources, would bring some relief in terms of their new provisions. The circular also requires the banks to perform annual appraisals of their foreclosed real estate assets (…).

Original story: Cinco Días (by Ángeles Gonzalo Alconada)

Translation: Carmel Drake

Spain’s Banks Sold RE Assets For c.€5,000M In H1

8 August 2016 – Expansión

Spain’s banks are still working hard every day on the unenviable task of cleaning up the property on their balance sheets. And that was reflected in their reported sales figures for the first six months of 2016, which increased by 9% compared with 2015. In total, the major Spanish entities (which have now published their results) received proceeds amounting to €4,860 million from the sale of homes and other real estate assets during H1 2016.

This acceleration was also accompanied by another piece of good news for the banks, namely that the improvement in the real estate market is allowing the entities to record profits in many cases.

In terms of the number of real estate units, the figure remained stable during the first half of the year, with around 37,500 assets sold during the first six months, up by 0.9% compared to H1 2015. This reflects the fact that the banks completed the same number of operations, but at higher prices.

This acceleration in real estate sales comes at a time when the banks are concerned about the effect that the accounting changes applied by the Bank of Spain will have. It is hoped that the new legislation – which comes into force in October – will tighten the bolts on the provisions made by entities against foreclosed assets. In fact, some groups recorded large provisions during the first half of the year to reflect the possible impact.

Mismatch of provisions

According to several financial sources, there is a mismatch in the provisions recorded against many of the banks’ foreclosed assets. In this way, the two Royal Decrees proposed by (Luis) de Guidos in 2012 established linear provisions for all of the banks’ properties, but there are significant deviations for homes depending on the region and condition, which are not reflected in their valuations.

In addition, both the Bank of Spain and the European Central Bank (ECB) have indicated on several occasions that the entities have to decrease the weight of non-performing assets on their balance sheets, one of the major impediments against improving yields.

“If we add the doubtful asset balance to the foreclosed asset balance, we arrive at a figure of €213,000 as at December 2015 […]. Although those two numbers decreased by 14.5% in the last year, they still account for a significant percentage of the banks’ assets in Spain and they weigh down negatively on their accounts”, say the Bank of Spain.

Just like last year, Popular was again the entity that recorded the highest revenues from property sales, with 5,227 assets sold for just over €1,000 million. (…). Santander and Sabadell came in close behind Popular, with sales amounting to €994 million and €974 million, respectively. Nevertheless, it is worth mentioning that the figures provided by the entities are not homogenous, given that some include sales by property developers linked to banks as well as sales of other assets such as garages, storerooms, retail premises and land. (…).

CaixaBank was ranked in fourth place, with sales of €610 million. (…). BBVA and Liberbank were the entities that saw the highest increase in property sales. Sales by the former rose by 62% to €323 million and that figure increases to €529 million if we include the sales of assets from its property developers’ balance sheets.

Meanwhile, Liberbank increased its volume of property sales by five times to €89 million, after reconfiguring its real estate arm and assigning more resources to it.

The other entities – primarily groups created from the former savings banks – fall well behind in terms of sales volumes because their balance sheets are smaller, in part because they transferred assets to Sareb. (…).

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Project Lane: Bankia Negotiates Sale Of €400M Secured Portfolio

13 June 2016 – Expansión

Project Big Bang paralysed the Spanish financial sector in 2015. At the time, Bankia tried to sell all of its foreclosed assets in a single transaction, including: 38,500 homes, 2,600 plots of land and 5,000 commercial premises, worth €4,800 million. A large number of funds were interested in the sale, but only Cerberus and Oaktree expressed their intention to submit binding offers. The prices and conditions did not match with Bankia’s expections and so it decided to suspend the operation at the end of the year. (…).

With all of those roadblocks, Bankia decided that it would maximise the value of its foreclosed assets by keeping them on the balance sheet and selling them off through the retail channel and in smaller portfolios, such as the case of Project Lane, see below. Even so, sources in the sector expect to see fresh attempts to sell large portfolios of foreclosed assets over the next few months and years, something that more than one entity has planned for 2016. To this end, the markets must improve further and provisions should be adjusted even more to the prices being offered by the funds. The Bank of Spain’s new accounting circular, which comes into force in October, is expected to help in this sense and to accelerate the divestment of the banks’ problem assets.

Project Lane

Now, Bankia is negotiating the sale of a portfolio of homes with three international funds, in an operation known as Project Lane. The entity is being advised by KPMG and is looking to transfer around 2,500 homes worth c. €400 million, according to financial sources.

The operation is in a very advanced phase, with binding offers due to be submitted next week. Bankia and its advisor have selected three funds, which according to the same sources, do not include Cerberus.

Initially, the US fund was the favourite buyer for the operation, on the basis that it knows the assets better than anyone else through Haya Real Estate, the former Bankia Habitat, which manages homes and real estate loans from Bankia. In fact, Cerberus was the fund that was closest to acquiring Big Bang, with an offer of around €2,100 million.

The portfolio of assets on sale as part of Project Lane primarily comprises homes, but also includes industrial and commercial assets, to a lesser extent. It is the largest sale of foreclosed assets that any of the banks have put on the market so far in 2016. Only Cajamar has explored this option in recent months, with Project Omeya – around €72 million -, as it waits to see what will happen during the second half of the year. The 2,500 homes on sale represent around 6% of the total haul that Bankia has on its balance sheet. The entity sold 9,200 properties through its branch network and Haya Real Estate last year. The aim is to try and repeat those figures in 2016.

Since the new management team, led by José Ignacio Goirigolzarri (pictured above), took over at Bankia, the nationalised group has been one of the most active in the sale of portfolios. Last year, it sold more than 80 batches of problem assets, which allowed it to decrease its doubtful debt balance from €20,000 million in 2013 to €12,500 million by March 2016. It has managed to do this thanks to higher provisions.

Original story: Expansión (by J. Zuloaga and S. Arancibia)

Translation: Carmel Drake

Sareb Reduces Its Assets By Just 6% In 3 Years

9 May 2016 – El Economista

Sareb has reduced the number of assets it owns by just 6.1% since its creation at the beginning of 2013. In the last three years, the company chaired by Jaime Echegoyen has decreased its volume of properties and loans by 12,091 units, representing 6.1% of the total, and so still held 186,120 assets at the end of last year, according to its annual report approved by the General Shareholders’ Meeting.

The firm, which was created using the toxic assets of the entities that received state aid, has twelve years left to sell off its remaining assets, which are valued at €43,000 million, after the sales it has already completed and the impairment in its appraisal values as a result of price decreases.

The small reduction in the number of loans and properties is due, in part, to the transformation of the portfolio into more liquid assets. Since it was created, Sareb has been converting loans in homes and land, so as to bring them onto the market more quickly in the face of their non-payment. In this way, the volume of financing lines to property developers has decreased by around 10,000, to just over 80,000, whilst the number of properties has been reduced by around 2,000, despite the fact that its divestments since the creation of its semi-public capital exceed 30,000.

Sareb’s General Shareholders’ Meeting approved the accounts from last year, which are weighed down by the new provisioning circular. Moreover, it authorised the exchange of subordinated debt for capital to strengthen its solvency, after recording significant losses in prior years. The company will convert €2,170 million in total. Following this operation, the State – through the Frob – will slightly strengthen its stake, since it holds more debt that the other shareholders. It will go from owning 45% of the shares to 45.9%.

In addition, several insurance companies will acquire small stakes in the company’s share capital, given that, until now, they only held subordinated bonds. The remaining shareholders – the banks – will see their shareholdings diluted slightly. Santander will continue as the main private shareholder.

Original story: El Economista (by F. Tadeo)

Translation: Carmel Drake

Bankia, Sabadell & CaixaBank Have Sold €17,000M Of Problem Assets

27 April 2016 – Expansión

Spain’s banks still need to get rid of €350,000 million of problem assets from their balance sheets, despite having already divested €65,000 million over the last five years. The leaders in the disposal of non-core assets so far have been CaixaBank, Sabadell and Bankia, although experts indicate that divestment of toxic loans and foreclosed assets may taken another ten more years.

That was the view of the Heads of Advisory for Financial Divestments at KPMG, Deloitte, N+1 and PwC. “After ten years in this market, I think that we still have another ten years worth of divestments ahead. This market is here to stay”, said Joel Grau yesterday, Partner and Co-founder of N+1’s Corporate Portfolio Advisors, at an event organised by Europa Press and Servihabitat.

In recent times, the rate of asset sales has amounted to between €16,000 million and €22,000 million per year and experts at KPMG predict that this year will be the second best in the history of the sector in Spain: “We expect to see an increase of 7% in terms of portfolio sales with respect to 2015, to reach €19,500 million, with the weight of mortgage portfolios and foreclosed assets accounting for 49% of the total”, said Amparo Solía, the Partner responsible for Corporate in the Finance and Real Estate Sector at KPMG, the consultancy firm that participates in half of all operations.

Of that figure of almost €20,000 million, there are currently almost €15,000 million in the market, according to Jaime Bergaz, the Partner responsible for Deals – Financial Sector at PwC. Of that amount, around half relates to portfolios with a real estate component: debt to property developers, mortgages and foreclosed assets.

Once again this year, the entities that are proving to be most active in the divestment market are Sabadell, CaixaBank and Bankia. According to KPMG, those three financial groups have sold off problem assets amounting to €17,000 million in the last three years, which represents 30% of all of the assets sold by Spain’s banks.

Bankia is the leader in the ranking, with €9,000 million sold in the last three years, according to the different consultancy firms, followed by Sabadell, with €4,500 million and CaixaBank, with €4,000 million. (…).

Sareb, BMN, Santander and BBVA have almost sold portfolios worth more than €2,000 million in the last three years.

In addition, Sabadell currently has two portfolios up for sale worth €1,300 million and is studying the possibility of bringing a third onto the market worth €1,700 million. Meanwhile, CaixaBank has an operation underway involving a portfolio of doubtful debts to property developers, worth €800 million; and Bankia is considering launching the sale of a package of doubtful mortgages. Moreover, Cajamar is also proving very active; Abanca has a portfolio of NPLs up for sale; and Popular is expected to be involved in some major deals during the second half of the year.

Solía, from KPMG and Grau, from N+1, predict a higher volume of portfolio sales in 2017, due to the new provisioning circular and the banks’ need to increase their returns.

Ahead of this improvement, funds are already managing 80% of the banks’ problem assets, through platforms that they have been buying up in recent years. Investors paid €4,000 million for the servicers and have absorbed 3,200 jobs from the financial institutions.

The acquired platforms include Altamira, in which Apollo owns an 85% stake; Aliseda, in which Värde and Kennedy Wilson hold a 51% stake; Servihabitat, of which 51% is controlled by TPG; Haya Real Estate, which Cerberus acquired from Bankia; and Aktua, which Centerbridge bought from Banesto and is now selling to Lindorff. (…).

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Sareb To Convert €2,400M Of Its Debt Into Capital

3 March 2016 – Expansión

Last week, Sareb’s board examined the draft annual accounts for 2015 and the new draft business plan that is being prepared to reflect the new accounting circular introduced by the Bank of Spain. At the meeting, the Directors also received the bad news that at least €2,400 million of Sareb’s subordinated debt will have to be converted into capital, to cover the losses incurred last year and to restore the net asset balance.

It was already known that the entry into force of the Bank of Spain’s accounting circular was going to cause significant problems for Sareb’s accounts and, consequently, the accounts of its shareholders (the Frob is the main shareholder of the bad bank, along with the majority of the banks that did not require public help back in the day), which have been forecasting that they will have to recognise additional provisions in their accounts for last year to mitigate those effects.

The problem is that as the process to put a market value on Sareb’s assets moves forward, the situation actually gets worse. And every time the Board meets to analyse the situation, that situation has inevitably got worse. The Board of Sareb expects to definitively approve the accounts for 2015 at its meeting at the end of the month and it will then present them publicly.

Recapitalisation

For the time being, the latest thing that the members of the Board know is that the company will have to make an effort in terms of its provisions, which are expected to amount to more than €2,200 million, as a result of the entry into force of the accounting circular, which means that it will have to recognise even higher losses than previously thought last year. And in the absence of sufficient capital to offset those losses, the entity is going to have to proceed to convert a substantial part of the subordinated debt that it issued when it was created, into new capital. That debt was acquired by around thirty entities, including the Frob and the main domestic banks, with the exception of BBVA, which refused to become a shareholder of Sareb or to finance it.

At the end of 2014, Sareb’s share capital amounted to €354 million, compared with the initial balance of €1,200 million, because by then it had already had to absorb the losses relating to the three years that had passed since its constitution in 2012. That capital was sufficient for the bad bank to avoid liquidation during 2015 (…).

But with the requirements of the new circular, which obliges Sareb to value at least half of its assets at market prices in 2015 and the other half in 2016, and with the limited revenues that the company has generated over the last year, the situation is becoming unsustainable from the point of view of its equity balance. For this reason, the management team announced last summer that it was very likely that it would have to resort to the conversion of some of its issued subordinated debt balance (€3,600 million in total) into capital, to restore this balance.

Using the data that the management team currently has available, the Board of Directors has been informed that at least €2,400 million of that subordinated debt balance will be needed to offset the losses for the year and for there to be a sufficient level of capital on the balance sheet.

Since the company has not yet re-appraised all of its assets (note, it has re-appraised more than the 50% required as a minimum by the Bank of Spain for the first year), it is quite likely that when 2016 comes to an end and in light of the likely operating results, Sareb will have to convert yet more debt into equity to restore the balance of its accounts. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Possible Postponement Of BdE’s New Provisioning Circular

1 March 2016 – Expansión

The entry into force of the new provisioning circular being prepared by the Bank of Spain, which is scheduled for 30 June, may have to be delayed. Spanish financial entities have been sending their comments about the circular to the regulator since January 22. The circular represents a modification to existing accounting standards regarding provisions, in light of the entry into force of the international standard IFRS 9, which will take effect from 2018.

“We think that the Bank of Spain will accept the postponement of the entry into force (of this new circular), until at least September”, explained a senior manager at one unlisted bank. One of the main difficulties involved with fulfilling the initially-planned timeframe is that “significant software development is required for the application of the new standard”. Sources at another three listed banks share this opinion.

The sector expects minimal impact from the entry into force of the circular. The Bank of Spain estimates that the provision level for the sector as a whole will not change much, according to one source. But some entities may need to significantly increase their provisioning levels, depending on what their portfolios are like. “With this circular – an intermediate step, ahead of the introduction of IFRS 9 – the Bank of Spain is preventing entities from leaving the adjustments required by the new standard until the last minute”, according to the Finance Director of one bank. We expect the coverage requirements to be tightened, especially for consumer credit and foreclosed assets.

The entities are worried because it will be mandatory for them to update the appraisals of their loan guarantees, which may affect the loan to value ratios of some mortgage loans, and therefore the provisioning requirement, depending on the age of each portfolio. The new standard will require the elimination of the ‘substandard’ credit category, which exists only in Spain, and the creation of categories of loans that will have to be provisioned because they display certain characteristics, beyond the individual circumstances of each one.

Original story: Expansión (by Michela Romani)

Translation: Carmel Drake