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.


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

Spain’s Banks Sell RE Assets Worth €52,000M+ In 2017

2 November 2017 – Cinco Días

According to all of the experts consulted, there is no doubt that the operation carried out by Santander in August, involving the sale of €30,000 million in property to Blackstone, marked a before and after in the formula for the financial sector to get rid of its real estate deadweight.

That operation significantly boosted the total amount transacted in these types of portfolio sale operations this year. Taking into account those operations that already have been closed, as well as those that are currently underway, the transaction volume in 2017 will comfortably exceed €52,000 million. That figure contrasts with the volume recorded in 2016 (€22,000 million), even though this year (2017) was expected to be more modest in terms of transactions.

The new international accounting standard IFRS 9, which will enter into force in January, and which will toughen provisions for real estate portfolios, as well as the pressure from the Bank of Spain and, above all, the European Central Bank (ECB) for the sector to accelerate the sale of its NPL assets, have served as a trigger for the banks to accelerate the sale of their foreclosed land and properties.

The heads of Spain’s largest banks (Santander, BBVA, CaixaBank, Bankia and Sabadell) have said, during the recent presentations of their results for the first nine months of the year, that their objective is that property will no longer weigh down on their income statements by the end of 2018 and, in some cases, by a year later, at most (…).

By way of example, Bankia has two very different financial operations underway, but international funds are the interested investors in both cases. One involves the upcoming sale of between 7% and 9% of the entity’s share capital, a placement that is expected to be carried out during the month of November and whose buyers will be institutional investors.

The other operation will involve the sale of several real estate portfolios. One of those, for €100 million, goes by the name Jets; and another, amounting to almost €2,000 million, is known as Giant, comprises property from Bankia’s own balance sheet and maybe some from BMN, the entity that it will integrate into its perimeter at the end of the year (…).

CaixaBank, with around €18,000 million in at-risk assets, of which €10,000 million are NPLs, may also star in a similar operation to the deal closed by Santander with Blackstone within the next few months, according to two experts.

For the time being, all of the consultancy firms and investment banks agree that (with the exception of the sales processes already underway) the trend is to carry out much fewer placements of small portfolios and “to undertake a few, large sales instead”.

These same sources also agree that the investment funds (Apollo, Oaktree, Bain, Cerberus, Blackstone, Lone Star, Castlelake, Värde Partners, Lindorff, TPG and Goldman Sachs, amongst the most active) “are in a hurry to buy and the banks are in a hurry to sell”.

One of the large banks that has shown reluctance to sell its real estate assets until now, despite its bulky portfolio of foreclosed assets, has been BBVA. It has carried out some operations (refer to the table above) but it has been, together with Sabadell, the only entity that has not sold its real estate platform.

Nevertheless, the bank chaired by Francisco González has been holding exclusive negotiations with Cerberus for months regarding the sale of part of Anida (in an operation known as Sena). Specifically, it is interested in 20% of Anida Grupo Inmobiliario SL, which is equivalent to around €1,200 million, an operation for which it would pay approximately €300 million.

But several sources say that the bank is rethinking its sales strategy and in 2018, will be willing to put a much larger portfolio up for sale and whereby tackle an operation similar to the one closed by Santander, but this time with Anida as the protagonist.

Sources at investment banks and managers add that the upcoming regulatory changes affecting securitisations in Europe will also help to boost the sale of packages of property portfolios amongst investors (…).

Original story: Cinco Días (by Ángeles Gonzalo Alconada)

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

Bank Of Spain Plans Provision Changes From June

16 January 2016 – El Confidencial

The Bank of Spain wants credit institutions to incorporate new accounting standards, prepared by the European Commission with a view to 2018, into the presentation of their results from June onwards. The change represents the further tightening of the multi-million provisions that the sector has been recognising in recent year, given that, from now on, the banks will have to adjust their accounts to take into account expected losses on each one of their loans rather than incurred losses. The measure will result in significant volatility, which may affect banks’ results for the first half of this year.

As a result, the accounting legislation known as Circular 4, which was first published in 2004 and established public information standards for financial entities, will have to be adapted to the new criteria presented by the International Accounting Standards Board (IASB). That body that has worked on the definition of the standards captured within IFRS 9, which, in turn, will replace those currently in force across the whole of Europe under the definition of IAS 39. The adaptation of the entire accounting system comes at a particularly critical time for the Spanish banking sector, which has had to undergo a restructuring process in recent years under the local anaesthetic of a rescue, which was requested in June 2012. (…).

The first drafts of the legislation being managed by the institution led by Luis Linde include apparent relief for credit entities given that the Bank of Spain plans to try and eliminate the infamous and onerous category of sub-standard risks. This classification forces banks to recognise provisions in successive phases within a pre-determined calendar against loans that may be affected by a subjective incidence of default. (…).

Sub-standard loans, which are unique and exclusive to banking regulations in Spain, will move onto a better life, but in exchange, a new index is going to be created, known by the title “special monitoring”. This will have, where appropriate, a greater impact on the financial statements of credit institutions. In its future circular, the Bank of Spain is going to require that banks put strict calculation models in place to ensure the expected loss of all of their loans from the moment they are granted and over the whole life of the investment. When a loan becomes doubtful, the entities will have to recognise the entire provision in one go, with the resulting momentary hit to the income statement.

Another novelty arising from the accounting changes will be the disappearance of the generic provision, which has been one of the main hallmarks of financial regulation in Spain. The generic provision will be substituted by a collective provision, which…must forecast expected losses on the entire loan portfolio up to one year ahead. The reform will be cushioned by a transitory process, which is currently being subjected to consultation with the financial institutions themselves, which must have their own business models in order to classify the quality of their investments. (…)

Original story: El Confidencial (by José Antonio Navas)

Translation: Carmel Drake