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The volume of non-performing loans of Spain’s six largest banks decreased further during 1Q20, but the banks have still set aside record levels of provisions to cover losses from an expected surge in bad loans due to the coronavirus pandemic.
The total level of NPLs for Santander Group, BBVA Group, CaixaBank, Sabadell, Bankia, and Bankinter was EUR 71.9bn at the end of March. At the end of 2019, NPLs at the six banks totalled EUR 73.6bn, about 92% of the EUR 79.2bn total still on Spanish banks’ balance sheets, according to the EBA Risk Dashboard. One year ago, at the end of 1Q19, the six banks had EUR 80bn of NPLs, 90.8% of the Spanish total of EUR 88.1bn.
Among the six banks, only Bankinter and CaixaBank saw a slight quarter-on-quarter increase in their NPL volumes. CaixaBank had EUR 8.9bn of NPLs, from EUR 8.8bn in December, with its NPL ratio still at 3.6% and down from 4.6% a year ago, when the volume was EUR 10.9bn. Bankinter’s NPL volume was EUR 1.75bn in March, up from EUR 1.68bn in December, with its NPL ratio at 2.58% up from EUR 2.51% the previous quarter, but still down from EUR 1.77bn and 2.87% from previous year.
After years of cutting NPLs, the trend is now set to reverse. “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,” said Jose Nestola, CEO of NPL servicer Copernicus.
The six banks took a total of EUR 6.2bn in provisions for the first quarter. Over half is accounted for by Santander Group’s EUR 3.9bn, of which EUR 1.6bn was specifically for losses linked to the pandemic.
While NPL sales have completely stopped, market players believe activity will come back in the second half of the year.
The funds will be facing losses because of the drop in pricing of assets, but will also have opportunities.
The market players expected most sales to be of legacy NPLs that the banks will focus on selling before having to face the new wave of NPLs. There will also be secondary sales, which Jose Masip, partner at Axis Corporate, forecast to be about 30% of the total.
“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.” And “Will banks and investors agree on prices?” Nestola added.
Alessia Pirolo is Head of NPL Coverage at Debtwire ABS. From a previous focus on Southern European Commercial Real Estate, she is now in charge to expand Debtwire's NPL coverage areas around the world. Before joining Debtwire, she covered U.S. and European commercial real estate for The Wall Street Journal, and the Commercial Observer. She holds a master’s degree from the Columbia University Graduate School of Journalism.
Amy is a data journalist for Debtwire. She covers the sale of NPLs and non-core loans, with a focus on Irish and UK markets and unsecured loans.