Spanish banks shield themselves from a potential increase in non-performing loans by accelerating the , known as REOs (real estate foreclosed after foreclosure) and non-performing loans (NPLs or non-performing loans) with a reactivation of portfolio sales this year for 14,000 million euros (added nominal value).
The figure represents an increase of 180% compared to 2020 and 139% compared to 2021 (with 5,000 million and 6,000 million respectively), but it is below the maximum levels of 2017 and 2018 (see graph)”, as confirmed by elEconomista.es Nahuel Callieri, Managing Director of and Carlo Savani, Senior Director of the firm Since 2017, the total volume of real estate debt transacted in Spain has been 130,000 million.
At the end of June, the volume accumulated in this type of assets was around 80,000 million euros, of which nearly 60% corresponded to debt from individuals and the remaining 35% to companies. The potential growth of default pushes entities to clean up their balance sheets despite the fact that, according to experts, they will be sales “with relevant discounts” due to the increase in the cost of financing.
Based on bank balance sheet data, the toxic brick credit stock in Spain is among the largest in Europe. “In general, they are very granular and low-quality positions (taking into account the liquidity of the assets and the complex situation with the debtors), mainly concentrated in low-liquidity residential, land and tertiary sectors,” Iñigo Laspiur explained to elEconomista.es. Oteiza, Head of Non Performing Assets, Debt Advisory and Restructuring of Real Estate.
Wallets ‘for sale’
Goldman was one of the first to ‘move the tab’ by liquidating all its real estate credit portfolios. Sareb is also preparing a historic sale to real estate development and land credit funds whose value could be, according to experts, between 1,500 and 2,000 million euros. “If closed, it would be the largest operation in the last three years, with the particularity of being a secured portfolio (with guarantee) of real estate developers in a market dominated in recent years by private mortgages or unsecured loans,” he qualifies. Other “transacted portfolios have been Yellowstone Project (800 million) and Macondo (700 million) -both from Banco Santander- and whose profile corresponds to private mortgages”, explains Laspiur.
Caixabank has launched the Galapagos Project to reduce the group’s asset perimeter by around 700 million. KutxaBank has also started to prepare a new operation focused on secured NPLs (New Lezama Project). Sabadell, for its part, launched last April the sale of a portfolio worth 1,000 million euros made up in equal parts of consumer loans and doubtful loans to companies. Other entities such as Unión de Créditos Inmobiliarios, a specialist in housing finance, have also put real estate debt portfolios up for sale this year, such as the Elcano Project.
Prices ‘down’
Regarding prices, the increase in the cost of financing will inevitably bring relevant discounts in the sale of this type of portfolio. “The rise in interest rates has caused the reference rates at which these portfolios are financed to increase by 260 bps and the margins by 50 bps,” indicates CBRE.
The banks, more capitalized than in the previous crisis, will play a decisive role in the new scenario. In the face of problematic situations, they will have, according to the experts, three alternatives: refinance long-term positions with their clients with the consequent impact on their income statement due to provisions; look for another financier, such as debt funds, to assume the risk of refinancing and selling the loan.
30,000 million, exposure to the hotel sector
Experts see a potential increase in delinquencies in the hotel market. “The sector has increased its indebtedness very substantially. Banks’ exposure now exceeds 30,000 million euros. Other sectors that may be affected are offices and retail in secondary areas,” adds Laspiur. As for real estate development, “the impact will be limited as there is little indebtedness and capitalization. Only in certain projects financed with debt funds could we see a situation of difficulty or distress,” she clarifies.
“This year an outcrop of non-performing loans is expected in the balance sheets of financial institutions due to the progressive disappearance of relief and support measures”
In short, Spanish banks want to loosen ballast by taking advantage of the abundant liquidity in the market and the capital raised by distress funds in recent years. Spain is in the focus of this type of investor specializing in assets and companies in difficulty as one of the main markets.
The potential rise in delinquency will be determined, on the one hand, by the end of State aid. The start of ICO loan repayments will produce a certain distress situation in certain companies together with the end of the moratoriums, including bankruptcy, which will increase the number of bankruptcy proceedings in the coming months. Without forgetting the energy crisis, the inflationary escalation and the high interest rates that will undoubtedly determine the impact on the delinquency of the companies.
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