Spain’s six largest banks have all reported a decrease in non-performing loans (NPLs) for 1Q20, but vast provisions have been set aside in anticipation of a COVID-fuelled spike in bad loans.
Santander Group, BBVA Group, CaixaBank, Sabadell, Bankia, and Bankinter reported a combined €71.9bn in NPLs as of March. This figure is down substantially compared to last year, when all six had €80bn worth of NPLs, equating for 90.8% of Spain’s total.
Only two of the big six reported minimal increases in NPLs.
Bankinter and CaixaBank saw increases in NPL ratios of 2.58% and 3.6% respectively, with the former’s NPL volume still down from 2.87% and the latter’s down from 4.6% in 2019.
This long-term decrease in NPL’s is set to be reversed in the not-too-distant future, with Copernicus CEO Jose Nestola stating, “A conservative estimation is that the level of NPLs in Spain will double from now to the end of 2021, with up to EUR 100bn new NPLs.”
It’s reported that the combined total of provisions for 2020’s first quarter is €6.2bn, with over half of that being comprised of Santander Group’s €3.9bn. Almost half of this has been earmarked for use against losses caused by the COVID pandemic.
Nicolas Pellen of the Pan-European experience in real estate and NPLs has warned both lenders and consumers that despite NPL sales coming to a complete halt, we will see a resurgence in the second half of 2020. He further explained this to reporters;
“Now investors can’t price the assets…But the forecast is for activity to come back by late September, early October.”
Jose Masip, who is an Axis Corporate partner added to this, stating that;
“The first buyers will remain the big funds…They know this is a market of volume. The strategy for the funds is to get the volume that the market will offer.”
Masip’s comments reiterate that despite funds being at risk of large losses due to decreased asset pricing, there is ample room for opportunities. Despite just two large Spanish portfolios closing in 1Q20 for €1.8bn according to Debtwire, sales could reach €20bn by the end of the second quarter.
According to Masip, most sales are expected to be comprised of legacy NPLs, with the other 30% coming from jumbo deals from recent years. The main focus will be on selling as much as possible in anticipation of a new surge of NPLs stemming from COVID-19.
Nestola summed up the current state of the market with the following;
“Seventy-five percent of the new NPLs will be SMEs and corporate, sales will first be unsecured and then secured SMEs while I expect a stop of mortgage portfolio sales…The big question is whether banks and investors will agree on prices. Still, with the current appetite we are seeing in the market, prices will drop but not as much as people expect.”