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

BBVA: Residential Investment Will Accelerate In 2017

9 September 2016 – Expansión

Investment in construction, in particular in residential housing, will become one of the main drivers of the recovery next year. BBVA Research, the research arm of the financial institution, forecasts that real estate investment will experience annual growth of 2.8% in 2016 and of 3.3% in 2017. According to the entity, the real estate boom will continue for the next two years.

Nevertheless, the “Economic Observatory for Spain” report, which the research arm presented yesterday, warns that domestic uncertainty and new “fronts of scepticism” – such as those resulting from Brexit – “will also affect the real estate sector over the next two years”. Even so, BBVA forecasts that house sales will continue to grow over the medium term, supported by “favourable financing conditions”. “The gradual increase in demand in an environment of decreasing supply will encourage construction activity and the emergence of new residential projects”, predicts the bank.

The Chief Economist at the BBVA Group and Director of BBVA Research, Jorge Sicilia, explained that the recovery in the housing market is still in its “very early” days, and as such, he believes that we should be “on alert” to the effect of low interest rate policies in the event that they last for a long time. In this sense, he indicated that although these policies are driving savings and investment decisions, they may end up having a “negative impact”. Despite these risks, BBVA’s research service calculates that residential investment will increase by 2.8% this year and by 3.3% in 2017. It also forecasts that investment in construction – which includes public works and non-residential properties – will grow by 2.3% this year and by 3% next year.

Echoing the report published on Wednesday by Analistas Financieros Internacionales regarding the evolution of GDP, BBVA forecasts that the economy will grow by 3.2% this year, before slowing down to 2.3% in 2017, due to a deceleration in private consumption and exports. According to the report, the political uncertainty resulting from the lack of Government may reduce economic growth by up to seven tenths this year and next, although this negative effect on GDP is one tenth lower than the impact calculated in May.

The labour market will also feel the effects of the slow down in the economy. This year, half a million full time jobs are expected to be created, but next year that figure will decrease to 300,000. The unemployment rate is predicted to decrease to 18.2% by the end of next year.

Original story: Expansión (by C.R.)

Translation: Carmel Drake

Banks Sold 40,000 Properties In YTD Sept

23 November 2015 – Cinco Días

According to estimates by Analistas Financieros Internacionales (AFI), the Spansh banks still need to digest €90,000 million of real estate assets foreclosed during the financial crisis. Despite this large burden, and the other toxic assets that these experts says are eating up half of the profitability of the country’s financial entities, getting rid of real estate assets is no longer the sector’s main priority.

Since the adoption of the so-called “Guindos decrees” at the start of 2012, which multiplied the provisions required by banks on their portfolios of toxic assets, the large firms in the sector have disposed of more than 300,000 properties.

Nevertheless, (…) signs that the market is now on the road to recovery have encouraged these entities to start to reduce their rates of sales this year and to apply their new philosophy, namely, to restore profitability, to these operations, as well as to the sale of foreclosed homes.

And the market seems to be helping. “A stronger macroeconomic environment, persistently lower interest rates and fewer home foreclosures will increase the volume of mortgages granted and put upwards pressure on house prices in Spain, if demand recovers” said a recent report from the credit ratings agency Moody’s.

Moreover, analysts at the firm believe that the process tends to be self-fulfilling and will be felt even more acutely during the last quarter of the year. “The increase in mortgage loans will likely result in higher real estate prices during the remainder of 2015”, they assert.

During the year to date, entities have focused on selling properties from their own balance sheets, which means that this year’s figures are not comparable with those of previous years, when they were also committed to selling the homes of the property developers that they financed.

In total, Santander, BBVA, Sabadell, Popular and Bankia sold off 38,121 properties during the first nine months of the year. Although CaixaBank has refused to disclose its figures for the period, the Catalan entity had already said that it sold 5,907 properties during H1 2015, which takes the total number of transactions in the sector this year to more than 40,000.

If we also include properties from real estate developers financed by the banks, then these six entities had sold 68,000 properties during the same period last year. However, a fundamental difference is that during the first three months of 2014, the average sales price of banks’ properties amounted to around €149,000.

Excluding the incomplete figures received from BBVA and CaixaBank (the former does not disclose the revenues it has received and the latter does not reveal the number of homes sold), the average sales price this year amounts to €160,923.

This figure is made more remarkable by the fact that at the start of 2014, the banks were selling off homes at an average price of €125,000 in order to increase sales. This strategy enabled them to multiply the number of transactions, which had reached an average of 250 sales per day by this time last year. By contrast, this year, the entities have sold around 141 properties per day, or almost 190 if we include the homes that CaixaBank must have sold.

The strategy adopted by the financial entities is the same as the one that Sareb has been pursuing this year. Sareb, which has Santander and CaixaBank as its main private shareholders, alongside the FROB, reduced its rate of sales to individuals from 45 homes per day to around 30 per day during the first half of the year…with a total of 5,345 operations during the first six months of the year, but at higher prices than in previous years.

Original story: Cinco Días (by Juande Portillo)

Translation: Carmel Drake

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