Tag: EBA

Spain’s Banking Sector Fears ECB Stress Tests

27 November 2017 – Voz Pópuli

Spain’s banks are facing a new perfect storm, albeit on paper. In an already difficult scenario in which the financial institutions are having to adapt to the new provisioning requirements (IFRS 9), they are also having to deal with the upcoming stress tests that are being prepared for 2018.

If we take an analogy by way of example – what is happening in the banking sector is equivalent to what would happen to a student if a decision was taken to change the language of his/her class and then a few months later force him/her to take an entrance exam in that new language. The entities have gone to the wire to try and persuade the authorities to examine them in their native language (based on their current provisions) but the European Banking Authority (EBA) and the ECB have outright refused.

The new provisions mean a radical change in the model. Until now, the banks recognise losses when their loans are impaired, in other words, when non-payments begin. Under the new system, the banks will have to anticipate advance signs of impairment.

A report from the consultancy firm Alvarez & Marsal estimates that the potential impact of the new IFRS 9 provisions on the stress tests is 465 basis points. More than half of that amount will come about in the first of the three years covered by the exercise, which reflects that from now on, crises are going to hit banks faster.

Impact

If we apply these calculations to the latest official figures from the sector (published on Friday as part of the EBA’s transparency exercise), the result in the loss of one-third of the regulatory capital (CET 1). Even so, they are stress test scenarios and so will not necessarily happen.

KutxaBank and Bankia were the entities with the largest buffers in the last year of transparency, with more than 14% of capital, although the group chaired by José Ignacio Gorigiolzarri will see its figure reduce once it completes its takeover of BMN. They are followed in the ranking by Unicaja, Abanca, Sabadell and Liberbank.

Another finding from the data published as part of the transparency exercise is that Spain’s banks have moved away from those of other peripheral countries (Portugal, Italy, Ireland and Greece) in terms of delinquency.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

EU Agrees To Create National Bad Banks To Assume Doubtful Debt

11 April 2017 – RTVE

On Friday (7 April),at a meeting in La Valeta, Malta, the Economic and Finance Ministers of the European Union agreed to back the creation of national bad banks, which will take on doubtful debt from the banks and whereby try to solve the problem of the “high” level of toxic assets in the European financial sector.

These non-performing loans, whose value amounts to almost €1 billion (equivalent to 7% of the EU’s GDP), account for 5.4% of the entire European credit portfolio, on average (in Spain, they account for 5.9%). Of particular concern is the high proportion in Italy (16.4%).

The Vice-President of the European Commission for the Euro and Social Dialogue, Valdis Dombroviskis, said that there had been “widespread support for the development of a project regarding how to design a national asset management company” and he encouraged ministers “to make use of the experience regarding asset management companies already in operation in some member states”.

In this sense, he explained that the EU Executive will work on a document that will serve as a guide for the creation of bad banks at the national level, which will take on these toxic products. When asked about the possibility of launching such an entity at the European level, the Latvian remarked that “most of the instruments are already in the hands of the member States” and that “loans are issued in accordance with national legislation”.

The ECB used the bad bank in Spain by way of example

Meanwhile, the Vice-President of the European Central Bank (ECB), Vitor Constancio, highlighted that the preparation of this plan by Brussels was a “very important” conclusion to emerge from the meeting. He gave the example of the good results in cases such as Spain, through the ‘Company for the Management of Assets Proceeding from the Bank Restructuring’ (‘Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria’ or Sareb). (…).

Dombrovskis added that Brussels is also exploring initiatives to facilitate the development of secondary markets for doubtful loans and in this sense, stated that “comparable and high-quality” data are “invaluable” because investors “have to know what they are buying”.

De Guindos defended the Spanish model

The Spanish Minister for the Economy, Luis de Guindos, defended the creation of a bad bank for the non-peforming loans of Europe’s banks as a solution that would eliminate “the root” of this problem, based on the model that Spain has put into practice for its real estate assets with Sareb. (…).

De Guindos underlined that it is also “very important” to value these assets properly and ensure that the provisions to cover them “are at the correct level”. Also, there must be a “fast-track legal system (in the EU) so that lenders are able to foreclose loans”.

The option of creating a bad bank was proposed by the European Banking Authority (EBA), which presented Spain’s Sareb by way of example of the benefits of these types of structure. Sareb was created to provide an exit for toxic real estate assets, but it is not supported by all parties.

Original story: RTVE

Translation: Carmel Drake

Sareb Supports EBA’s Proposal To Create EU Bad Bank

7 February 2017 – Cinco Días

Last week, the European Banking Authority proposed the creation of a continent-wide bad bank and that initiative has now been approved by the European Central Bank. Brussels can also count on support from Spain, a country that, to a certain extent, has become an essential reference point following the rescue of the Spanish banking sector and the creation of Sareb, the national bad bank.

“The EBA’s proposals echo a lot of our experiences, as well as the lessons learned during the process”, says Íker Beraza (pictured above), Deputy General Director of Finance at Sareb (…).

Sareb allowed Spain’s banks to free themselves from non-performing loans amounting to €50,700 million. It is hoped that this will able to be replicated on a European scale. In Italy alone, NPLs amount to €276,000 million, and in France and Spain, the volume still amounts to more than €140,000 million. In total, Europe’s banks have more than €1 billion in doubtful loans.

The definitive clean up of these balance sheets has become an obsession in Brussels in recent months. And the plans to find the most appropriate way of doing this are accelerating. (…).

A working group between the 28 EU member countries, operating under the chairmanship of the French Treasury, has been debating for six months regarding possible solutions for putting an end to the crisis that is weakening the financial sector, reducing the availability of credit and hampering growth.

Like in previous phases of the crisis, the heated dispute between countries in the north and south is reducing the chances of reaching an agreement. But an air of urgency is starting to dominate and the EBA’s proposal has brought to light buried contracts, with the possibility of transferring up to €250,000 million in non-performing loans to the European bad bank.

Last Friday, high profile representatives from the European Commission, the ECB, central banks and Treasuries, attended a seminar, behind closed doors, regarding “the crisis of the non-performing loans”, organised in Brussels by the Bruegel study centre.

Beraza attended, on behalf of Sareb, as one of the most prominent speakers. “The EBA’s proposal is interesting and we can share important lessons that we have learnt since 2012”, said Beraza.

Beraza said that experience in Spain is proof that “the transfer of assets is a very efficient tool and that in Spain, to date, it has worked out 20 times cheaper than recapitalisation”.

Sareb’s Director considers that the creation of a similar entity on the European scale “would give the system the robustness it needs to handle crises, which have been shown themselves to be almost always systemic, as well as contagious from one country to the next”.

Sources at the European Commission say that the initiative could begin with a first step based on coordination between the national bad banks. The ECB is also keen to establish a common model upfront for the creation of all national banks in the Eurozone.

Moreover, the EBA’s proposal rules out the mutualisation of the potential losses of the European bad bank, which would be borne by the national authorities. This safeguard was introduced to stop Berlin from vetoing the project. (…).

“It is clear”, said Beraza, “that the bad bank model is here to stay in Europe, as an effective tool to be used in the time of crisis”.

Original story: Cinco Días (by Bernardo de Miguel)

Translation: Carmel Drake

The EBA Lobbies For The Creation Of A European Bad Bank

31 January 2017 – El Economista

On Monday, the European Banking Authority (EBA) urged the European Union (EU) authorities to establish an alternative investment fund to acquire delinquent loans from the European financial sector, with the aim of stimulating economic growth in the region.

In a speech in Luxembourg, the President of the EBA, Andrea Ernie, highlighted that tackling the high level of delinquent debt in the EU – which stands at approximately €1 billion – is an “urgent and viable” issue, according to Reuters.

In this sense, Enria indicated that EU banks may sell some of their non-performing loans to an EU “asset management” company.

Enria proposes assigning an agreed “real economic value” to the non-performing loans sold and for the investment fund that buys them to act as a “bad bank”, given that it would have the obligation to dispose of the assets within three years at their real economic value, rather than at market price.

“If that value is not achieved, the bank must bear the impact at the market price and a public recapitalization must be carried out with all the conditions that accompany the process”, said the President of the EBA.

In this regard, the Managing Director of the European Stability Mechanism (MEDE), Klaus Regling, welcomed the EBA’s initiative and added that the proposal does not involve sharing banking risks between member states, which is something that Germany has firmly opposed in recent years.

“It is likely that the public sector will have to play a role”, said Regling at the event, where he also said that the “bad bank” should aim to acquire up to €250,000 million of non-performing loans.

Original story: El Economista

Translation: Carmel Drake

Sareb Sells 10.900 Properties in Nine Months, Averaging at 40 Units a Day

28/10/2014 – Expansion

Spain’s Management Company for Assets Arising from the Banking Sector Reorganization, also known as Sareb, has transferred a volume of 10.900 REO properties from January to September 2014. As its chairwoman Belen Romana (pictured) pointed out, the performance is much better than predicted as it averaged at 40 units sold every day.

At her hearing in front of the Economy Committee, Mrs Romana confirmed the plan of Sareb of repaying €3 billion indebtness this year, 50% more than in 2013.

During the one and half year of its lifespan, the bad bank has paid back more than €3.6 billion, equal to 7% of the total issued debt. At the same time, it paid almost €1.64 billion in interests.

In the first half of the year, Sareb earned nearly €1.7 billion and its Ebitda rose to €429 million. During her speech, the chairwoman put the emphasis on the fact that this strong cash flow allowed the firm to pay €100 million in monthly fees to the transferring entities.

Contribution to Success at the Stress Test

Belen Romana also assured that Sareb has modestly contributed to the good result of the asset quality review and the stress test of all eurozone entities conducted by the European Central Bank (ECB) and the European Banking Authority (EBA). And if it hadn´t been to the bad bank, they could not remove the toxic assets from their balance sheets.

Since its creation, Sareb has been meeting its main target (i.e. ‘sell & sell more’) and therefore adding to vivid movement on the market. The bad bank is said to have atrracted attention and change the perception of the Spanish real estate among investors.

 

Original article: Expansión

Translation: AURA REE

Spanish Banks Get Good Marks at ECB’s Stress Test

28/10/2014 – Expansion

Spanish banks pass the ‘stress test’ by the European Central Bank (ECB) and the European Banking Authority (EBA), taken by the eurozone entities across the continent. The examination was failed by 25 out of 123 scrutinized banks, mostly located in Italy, Greece and Cyprus. When it comes to Spain, all fifteen entites were successful, with Liberbank showing a €32 million deficit in 2013 for which it has already intended €637 million. None of them showed need of capital.

The Bank of Spain’s Governor Luis María Linde assured the good marks were no coincidence as the State undertook meaningful measures to remove the toxic assets, cover the refinancing and obtaining the €50 billion European bail-out. Out of the supervised entities, BFA-Bankia, NCG (now Abanca), Catalunya Banc, BMN and Liberbank have received a direct support from the Government.

‘If marks were given, Spain would get the best one in the part of balance revision’, said Mr Linde. In fact, this country has shown the smallest adjustment in risky assets in Europe (0.2%).

All the entities preserve a wide margin in case of an adverse economic scenario, ranging from 5.5% to 8% and representing around €56 billion in total.

‘The banks have got a solid solvency position but no guarantee for the next 15-20 years’, warned the Governor. Fernando Restoy, vice-governor, added that the sector faces ‘not at all negligible challenges’ such as infavorable regulations and ‘flimsy’ economic circumstances which harm profitability.

Lending

In line with the cautiousness displayed above, the Bank of Spain would rather say the confidence and lending will return but not abruptly. The central entity also revealed that once the Asset Quality Review (AQR) is finished, the bank will welcome any activity leading to risk reduction.

Original article: Expansión (by M. Martínez & J. Zuloaga)

Translation: AURA REE