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