Bankinter & Popular – Two Sides Of The Same Coin

8 March 2016 – Expansión

The banks’ default rates  are decreasing and their coverage ratios are increasing. Nevertheless, and although the sector is well provisioned in general, experts point out that not all of the entities are in the same boat.

The long awaited publication of the new Circular by the Bank of Spain regarding provisions, which may now be delayed until September, has brought back to the forefront a topic that Spain’s banks were anxious to leave behind: is the cumulative provision level sufficient?

Most of the experts agree that it is, at least in aggregate – overall, Spain’s banks are well provisioned. But there are important nuances, because not all of the entities are in the same situation and we cannot yet completely rule out one-off surprises, which may require further efforts to strengthen balance sheets. (…).

Individual cases

(…) The experts also note that not all of the banks are the same in terms of their default rates and provisions, something that is clear from looking at the delinquency, coverage and foreclosed asset data as at year end. In terms of loan default rates, Popular and Bankinter represent the two sides of the same coin.

The bank chaired by María Dolores Dancausa continues to be the least delinquent, as it has been throughout the crisis. It closed 2015 with a defalut ratio of 4.13%, less than half the sector average.

The entity has properties amounting to just €531 million on its balance sheet and, moreover, together with Bankia, is the only entity that managed to reduce its cumulative stock during the year. On this basis, analysts agree that the relatively low levels of coverage are adequate for its risk profile.

Meanwhile, Popular finds itself at the other end of the spectrum. Its default rate at the end of the year was the highest of all the listed banks, at 12.86%, and its coverage rate was 42.5%, ten points below the average. The bank chaired by Ángel Ron has property amounting to €14,629 million on the balance sheet, exceeded only by BBVA, which has just devoured CatalunyaBanc’s properties (those that were not transferred to Sareb).

In fact, Popular is the bank that analysts cite when warning about possible exceptions to the relative calm on the subject of provisions. In this way, Nuria Álvarez, a banking analyst at Renta 4 says that “we cannot rule out the fact that some entities will still have to make a significant effort, as may be the case of Popular”. (…).

The economist Carmelo Tajadura shares this view, confirming that “Popular is the weakest of the largest six banks”. This expert says that the bank led by Francisco Gómez has made significant efforts to clean up its balance sheet in recent years, but despite that, it still needs to continuing making provisions, without lowering the pace. Tajadura is certain that “Popular has left the worst behind, but it still has a lot to do”. (…).

Popular is very clear that its priority….is to aggressively reduce the volume of non-productive assets on its balance sheet. The bank has set itself the objective of freeing up at least €4,000 million of these assets this year, although some sources raise that figure to €8,000 million (25% of its total stock).

(…). Besides this forecast reduction, announced in its results, Popular is “working on the possible creation of an SPV to which it would transfer between €4,000 million and €5,000 million of assets and then sell a majority stake in that vehicle to institutional investors”.

Problem entities in the wider market

Beyond the large listed banks, the analysts confirm that there are other entities with more problems, including Abanca…because of the quantity of deferred tax assets it has accumulated…”. Other entities flagged as the weakest when it comes to measuring balance sheet quality are Liberbank, Cajamar and BMN.

Original story: Expansión (by Michela Romani)

Translation: Carmel Drake

Caixabank Will Need 6 Years To ‘Digest’ Its Toxic Assets

2 February 2015 – Voz Pópuli

Caixabank’s real estate arm generated losses of €1,148 million in 2014. The volume of foreclosed assets increased to €6,719 million, above the figure in 2013. The entity did improve its coverage levels. However, profitability barely reached 2.7%.

Caixabank’s surfeit of toxic assets peaked at close to €30,000 million. It managed to trim that down to €20,110 million by the end of 2014. However, progress continues to be slow. The entity forecasts that its balance of doubtful real estate assets generated during the real estate boom will not be fully run down for another six years, if the current pace of asset sales is maintained.

The entity chaired by Isidro Fainé marketed 23,400 properties for rental and sale in 2014, which resulted in turnover of €2,512 million (i.e. a 15% increase for rentals and a 28% increase for sales). If we add the properties marketed by developers that are financed by Caixabank, these figures increase to 35,870 properties and turnover of €5,432 million. However, this intense activity generated losses of €1,148 million for the real estate division, a business that has a delinquency rate of 58.7%. The entity’s overall delinquency rate is 9.7%, having dropped down from double-digit levels last year.

Caixabank succeeded in reducing its default rate by two percentage points during the course of the year, to 9.7%. This reduction was made possible by the fact that the decrease in doubtful debts was greater than the contraction in new credits, which dropped by 4.8% during the year. Even so, the bank led by Gonzalo Gortázar emphasised the changing trend observed in the last quarter of the year, and the fact that its credit balance rose by 1.4% compared with the same period in 2013. Nevertheless, it does not expect credit balances to grow in the sector in 2015.

A two-phase approach for getting rid of toxic assets

Caixabank’s exit from this stock of toxic assets (€20,110 million) will take place in two stages. Over the next two years, its real estate business will continue to make significant losses, which will weigh down on Caixabank’s income statement, explains its CEO, Gonzalo Gortázar. The largest impact on the balance sheet will take place in 2017 when the doubtful properties become foreclosed assets. “On average, it takes 4 years to sell a foreclosed property”, explained Gortázar.

As at 2014 year-end, Caixabank had €6,719 million foreclosed assets, a little over €650 million more than at the end of 2013. This increase is explained in part by the decrease in doubtful assets. The Catalan entity recorded four consecutive quarters of declining doubtful assets. These foreclosed assets had a coverage ratio of 55%, 140 basis points more than at the end of 2013.

In terms of solvency, Caixabank closed 2014 with a core capital ratio of 13.1% (measured in accordance with the Basel III framework), an increase of 128 basis points on the previous year. The fully loaded ratio, with all the deductions that will apply in the near future until 2019, was 12.3%. Nevertheless, these good results contrast against an excessively low level of profitability. Caixabank’s ROE stood at 2.7% at the end of December, a long way off of the ratios recorded by other entities, such as Bankia, which recorded a ratio of 8.4% at the end of September.

Indeed, the quest for profitability will be one of the main priorities of the strategic plan that the entity will present in London on 3 March. The market is now expecting entities to record double-digit ROEs.

Original story: Voz Pópuli (by Miguel Alba)

Translation: Carmel Drake