Tag: regulatory capital

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

Popular Abandons Sunrise To Pursue Other RE Solutions

29 March 2017 – Cinco Días

Speculation about the future of Banco Popular has not dissipated following Emilio Saracho’s arrival as the entity’s new President on 20 February, although it is true that it has tempered slightly. The bank’s low solvency ratios, after it completed a major cleanup effort in 2016, are fueling those rumours and it seems that until the entity shows the market that it is capable of resurrecting itself like Ave Fénix, through some kind of major sales operation, then the market will not stop seeing it as an easy target.

Popular’s level of regulatory capital stood at 8.17% in December, below the 10.5% required by the ECB in January 2019 and also below the average for the sector. Most of its capital consumption is due to its high-risk level, itself a consequence of its large property portfolio, the main problem in all of this. However, a substantial number of the solutions designed by the former President, Ángel Ron, have now disappeared or have been modified. (…)

One project that has been buried almost completely, although it has barely been acknowledged that it is not going to be carried out, is Sunrise. That was Ron’s star project, to eliminate a large part of the entity’s real estate portfolio.

The idea was to transfer around €6,000 million in real estate assets to this vehicle, which was going to be deconsolidated from Banco Popular’s balance sheet, after securing a complex financing structure, and its subsequent debut on the stock market.

It seems that Saracho has not approved of that project since he arrived at the bank and has decided to shut it away in a drawer, never opened. Now questions are being asked about what will happen to Remigio Iglesias and Roberto Rey, two executives hired by Popular last year to serve as the President and CEO of Sunrise, respectively.

Another option still open to Popular is to turn to the European bad bank, which the ECB is expected to create, according to market sources. In fact, Popular’s share price was the most bullish on Tuesday, with an increase of 3.24%, after the European Banking Authority said that it was in favour of creating a European bad bank to solve the problematic loan phenomenon, a project that is also supported by the ECB.

Original story: Cinco Días (by Ángeles Gonzalo Alconada)

Translation: Carmel Drake