Tag: restructured loans

Liberbank, Sabadell & Bankia Lead Sales Of Non-Performing Assets

4 November 2016 – Expansión

Significant reductions / the three entities’ doubtful loan and foreclosed real estate asset balances decreased by between 15% and 19% during the first half of the year.

Spain’s banks are beginning to heed the recommendations of the ECB, which has turned the divestment of non-productive assets into its battle horse. To this end, the European banking supervisor has urged those entities with the worst default ratios to present clear and defined strategies for reducing the perimeters of their balance sheets. The body has even advised the entities to link the bonuses of their managers to decreases in non-performing loan balances.

The pace of divestment of these assets, which generate high costs and zero revenues, is picking up speed. A recent report about the banking sector, published by the broker Ahorro Corporación, reveals the names of the leading entities in this regard: Liberbank, Sabadell and Bankia. According to the data compiled between January and June, they decreased their problem assets by 19.2%, 15.7% and 15%, respectively. Not all of the entities supply this information to the market and it is hard to make comparisons between entities. “All of the listed entities reported that negative net inflows of non-performing debt are widespread, although they are all in different stages of the process to normalise the cost of the risk”, explained the firm.

The impact of the Bank of Spain’s new accounting circular, which has just entered into force, is aimed precisely at strengthening provisions against foreclosed properties and plots of land following the burst of the property bubble. It mainly affects Sabadell and Liberbank.

The Bank of Spain’s Financial Stability Report, published yesterday, reveals some success in the sector in this regard. According to its data, doubtful assets in domestic banking businesses decreased by 18.2% between June 2015 and June 2016. The cumulative decrease since December 2013 amounts to 38%.

Despite the dynamism in the real estate market, foreclosed assets (properties handed over to pay off debt, premises, land, etc.) have recently experienced a slow down in the rate of sales. Between 2011 and 2013, the decrease was boosted by bulky sales from Sareb, the bad bank. That entity has now taken over the baton in the segment of portfolio sales.

Overall, the perimeter of non-performing assets decreased by 12% YoY and now amounts to €199,000 million. Refinanced and restructured loans decreased by 12.1% in one year and by 26% since March 2014.

Nevertheless, non-performing assets still account for 15% of Spanish banks’ balance sheets, whereas in the UK and Germany, they account for just 3%, according to a study by AFI. If they were all sold at once, the additional return would allow them to cover the cost of capital, which is what shareholders want the most.

The average ROE of Spain’s banks is 6.1%, according to data from the Bank of Spain as at 30 June 2016. That figure is slightly higher than the European average. Nevertheless, the cost of capital stands at around 8%-9%. (…).

Original story: Expansión (by R. Lander)

Translation: Carmel Drake

Moody’s: Spain’s Banks May Securitise €105,000M Of Problem Assets

5 October 2016 – Expansión

Moody’s Forecast / The US giant Blackstone has opened an alternative route for Spanish entities to accelerate the clean up of their balance sheets, through the placement of securitisation funds containing restructured credits.

This week will see the placement of the first securitised fund of problem mortgages on the market in Europe by Blackstone, in a move that is set to pave the way for Spain’s banks to replicate the model. Blackstone’s plans involve the sale of some of the assets (€265 million) that it bought from Catalunya Banc in 2015, for a nominal value of more than €6,000 million.

The ratings agency Moody’s estimates that Spain’s banks have €105,000 million in refinanced or restructured problem loans in total, primarily mortgages, which may be put on the market through securitised funds. “The banks are under pressure from the ECB to reduce this load as quickly as possible, to clean up their balance sheets and improve their returns”, said Moody’s in a recent report. According to PwC, half of the problem loans in Europe are held by borrowers in Italy, Spain and Ireland.

Assets susceptible to being securitised are those that have been modified to help the borrower pay, although they do not necessarily need to have been in arrears in the past. The original loan may have been refinanced (offering a new loan to repay the existing one) and/or restructured (changing the terms and conditions). This figure is lower than the total volume of overdue loans owing to Spain’s banks, which amount to €138,000 million and foreclosed properties (€113,000 million).

For example, in its securitised fund, Blackstone has included only those loans that have been performing (being repaid) for more than 37 months in a row, therefore, they are considered to be “high quality” problem assets. In exchange, they offer an attractive yield, more than 100 basis points above Euribor, with a discount of just 10% for those funds prepared to bear the most risk.

In order to open up this market, players have worked hard to obtain support for these types of securitisations from the regulators. Both the ECB, as well as the Bank of England and the European Banking Authority have been working to create specific pan-European regulations to facilitate more simple, transparent and standard securitisations, pending approval from the European Parliament. According to Moody’s, securitisations of refinanced and restructured credits would fall within this definition, which should facilitate their placement amongst investors.

Investors

The most active buyers of these types of problem asset portfolios in Europe may now also participate as investors in this market. According to data from Deloitte, Oaktree, Lone Star and HSH are the most active purchasers, with more than €5,000 million, followed by others such as Bain Capital, AnaCap and Apollo.

Until now, many of the portfolios sold by the banks to these funds have been transacted through bilateral operations. Nevertheless, the economic recovery means that the volume of refinanced loans that are now performing (being repaid) is increasing, which means that the sector could generate higher returns from these kinds of securitisations.

Original story: Expansión (by Daniel Badía)

Translation: Carmel Drake