Bank of Spain: Default Rate Falls To 9.44% In June

19 August 2016 – Expansión

Yesterday, the Bank of Spain published provisional data for 30 June 2016, which shows that the default rate decreased for the fifth consecutive month, to 9.44%, its lowest level since June 2012. The figure includes the change in methodology for classifying Financial Credit Establishments (EFC), which are no longer included within the category of credit institutions. In this way, the default rate has now been below the 10% threshold for the fourth consecutive month.

The decrease in the default rate has come despite the fact that total credit in the sector rose by 1.2%, the first increase since November 2015. Specifically, total credit increased by €15,682 million to €1.298 billion. “The decrease in the default rate coincides with the strong growth in new loans to SMEs and households”, said José Luis Martínez, spokesperson for the Spanish Banking Association (AEB).

Doubtful debt

The doubtful debt balance sank to €122,508 million, down by €3,689 million compared with the previous month, its lowest level since June 2011. Financial entities have decreased their combined doubtful debt balance by more than €70,000 million since the peak in 2013, when it exceeded €200,000 million.

Therefore, the clean up of the financial sector is now a reality. Nevertheless, some entities have performed the process more quickly than others. In the last year, Sabadell and Bankia stand out as the entities that have got rid of the most doubtful assets, having reduced their doubtful balances by almost a quarter each. Specifically, the Catalan entity has reduced its doubtful debts by 23.9% and Bankia by 23.2%. Three other Spanish entities reduced their doubtful balances by at least a fifth between June 2015 and June 2016, namely: Liberbank (22.4%), Abanca (22%) and CaixaBank (20%).

Several factors have contributed to the reduction in the doubtful debt balance. As well as the macroeconomic improvement seen in recent years, the entities have accelerated their portfolio sales to large funds.

Another way in which the banks have shrunk their large doubtful balances has been through foreclosures, especially of unpaid loans to property developers overdue by more than one year.

Original story: Expansión (by D.B.)

Translation: Carmel Drake

Evo Buys GE’s Spanish Mortgage Business For c. €300M

14 April 2016 – Expansión

As a result of this operation, involving Evo’s acquisition of almost €400 million in mortgages from GE Capital, Apollo’s subsidiary expects to increase its balance sheet by 10% and its loans to customers by 25%.

(…). The Spanish subsidiary of the US fund Apollo is acquiring General Electric’s mortgage business in Spain: almost €400 million in loans to individual borrowers, according to financial sources consulted by Expansión. According to the same sources, Evo will pay almost €300 million for the portfolio.

This operation brings the bank led by Enrique Tellado closer to its objective of achieving critical mass to emerge from the red in 2016.

Since Apollo acquired Evo, the former subsidiary of NCG Banco, the entity has registered three consecutive years of losses: €3.6 million in 2013, €78 million in 2014; and €13 million last year, according to the latest figures published, as at September, according to the Spanish Banking Association (AEB).

GE Capital Bank, the financial arm of GE, launched this divestment last year, as part of Project Zágato, advised by PwC. The portfolio, worth €400 million, contains 5,000 mortgage contracts and mainly contains loans that the US entity granted through APIs (real estate agents).

With this sale, GE Capital Bank is virtually shutting down its business in Spain, following the transfer of its leasing portfolio to Incus Capital, at the end of last year; and the repayment of the majority of its consumer loans.

This departure is the response to a change of strategy for the multinational company at the global level. At the beginning of 2015, GE decided to divest the majority of its financial business to focus on its industrial turbine, aircraft engine and medical equipment businesses, amongst others. It did so because of the risk posed by this financial exposure following the outbreak of the subprime mortgage crisis in 2008. At the time, the group had financial assets worth $500,000 million (€438,400 million).

Since then, GE Capital has been selling off parts of this business through different agreements in different countries, such as those signed with Evo and Incus in Spain.

This subsidiary reached its peak in Spain with partnerships that it signed with CAM and BBK before the crisis.

In 2008, it recorded losses and has remained loss-making ever since.

Quantitative leap

Project Zágato allows Evo Banco to make a significant quantitative leap. The portfolio acquired represents around 10% of its current balance sheet, which according to data from AEB as at November amounted to €4,000 million. The growth in terms of loans to customers is greater, almost 25%, given that it held €1,771 million last November.

Apollo’s standard strategy since it arrived in Spain has been to make purchases of entities, such as Evo Banco, which it acquired in 2013. Evo’s loan portfolio comprises purchases such as Finanmadrid, from Bankia; Bank of America’s credit card business; and portfolios of consumer credit and mortgages from Citi.

In the last few months, Evo Banco and Apollo have looked into other acquisitions in Spain, such as the BarclayCard sale, where it was pipped to the post by Bancopopular-e, the subsidiary of Värde Partners and Banco Popular, which is now in exclusive negotiations.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Guindos Changes Risk Traffic Light Amidst Criticism From Banks

5 November 2015 – Cinco Días

The Ministry of the Economy is reforming the risk traffic light originally designed by the CNMV once again. It is reducing the number of colours and is resisting criticism from banks, brokers, insurance companies and pension fund managers with an avalanche of arguments. It is also reducing its robustness. The ministry led by Luis de Guindos has sent a letter to the State Council setting out his aim of approving the regulation before the general election.

The Ministry of the Economy picked up the gauntlet from the CNMV at the end of May. The supervisor, led by Elvira Rodríguez, responsible for ensuring the proper marketing of financial products, amongst other things, designed a first draft of the risk traffic light in September 2014. (Note, the CNMV is not responsible for the oversight of deposits, since they are looked after by the Bank of Spain, or pension funds and insurance products, since they are managed by the Department for Insurance and Pension Funds).

The draft circular was modified after it was subjected to public consultation. Initially, the standard comprised a five colour scale, in a style very similar to the labelling system used for the energy classification of household appliances in Europe. The colours corresponded to the letters A to D. The CNMV took into account most of the comments it received from the sector, such as increasing the number of risk categories from five to seven.

Several months passed and Elvira Rodríguez made a complaint in Congress on 27 May, flagging that the Ministry of the Economy had not yet sent the proposal to the State Council. The ministry of Luis de Guindos replied the following day, by publishing its own risk traffic light standard for consultation. As such, it withdrew the CNMV’s power to take responsibility for it. The ministry had updated the traffic light and added another risk level. (…).

Various consultations, discussions and criticism ensued, including reprobation from the sector that this standard was unnecessarily anticipating the European rules governing the fundamental data relating to retail investment products. Those rules, approved in 2014, will enter into force at the end of 2016. The Spanish Banking Association (AEB) for example, said that it is unreasonable “to bear the costs [..] of a domestic solution that will last for one year only, not to mention the considerable confusion that it may cause for consumers”.

The latest draft of the classification, which has now been sent to the State Council, has undergone a new metamorphosis. The number of colours has been reduced (from eight) to seven and a long introduction has been included to defend its legality in the context of the new European rules and to justify the powers of the Ministry of the Economy to design this regulation. The aim is for the standard to be ready during this parliament. (…).

Original story: Cinco Días (by Pablo Martín Simón)

Translation: Carmel Drake

The AEB Thinks That The Mortgage War Is “Very Positive”

6 January 2015 – Expansión

AEB/ The Chairman of the bankers’ assocation says that the current battle for mortgages indicates that the financial sector is still competitive, despite the concentration of entities.

The on-going battle between banking institutions to offer new mortgages is a clear sign that the system is performing well following the restructuring of the last few years, according to the Spanish Banking Association (Asociación Española de Banca o AEB). Its Chairman, José María Roldán, said yesterday that it demonstates “that we have a competitive financial system. We are seeing a very strong degree of competition, to the extent that opportunities and confidence have allowed, and I believe that this is very encouraging. The most important thing is that the choice of loan is appropriate in terms of risk. All of this indicates that, despite the process of concentration that has taken place, healthy competition is still very much alive”.


Roldán was speaking at the Conference on the Spanish banking sector, organised by the Valencian Institute of Economic Research (el Instituto Valenciano de Investigaciones Económicas or IVIE). In his speech, he said that the most important thing right now is that demand for credit in Spain is returning. “Excessive leveraging has been corrected, in some cases loans have been written off and in other cases they have been refinanced, and so we now have sectors with less debt, which the uncertainties would not allow to commit to any investment projects”, he explained.

Now “we are in a situation in which the banks are fully prepared to finance the process of economy recovery, financing rates are very low and demand for credit is beginning to return. At present, there is strong competition between banks to grant loans. Although that does not mean that everyone asking for a loan will be granted one”.


Nevertheless, he considers that it is “difficult to predict when bank credit (on an aggregate basis) will begin to grow, since it depends on two processes. One, in which economic agents with good financial standing are able to demand and obtain credit, and the other, whereby the agents that are still heavily indebted are continuing to service their debts”.

But he reiterated that “that is not the most important thing. What is important is that demand for credit is increasing and that financial institutions are prepared to meet it”.

Original story: Expansión (by J. Brines)

Translation: Carmel Drake