The non-performing loan pain in Spain goes on, and on

Discussion in 'Wall St. News' started by ASusilovic, Apr 20, 2010.

  1. The Bank of Spain released the February data for Spanish banks’ non-performing loans on Monday, and the details aren’t pretty.

    Like much else in the wreckage of Spain’s pre-recession property boom, the performance of these banks’ loan portfolios is less than reassuring, Execution Noble’s Joe Dickerson notes:

    Credit quality continued to deteriorate in February, with non-performing loans totaling 5.39%, compared with 5.30% at January 2010 (over the past 30 years, the NPL rate has increased 2bps on average in the month of February). Year on year, such loans are up 25%. It is worth noting that in Feb 2009 there was a 139 basis point gap between the NPL rate of the savings banks and the commercial banks; today this gap is 14 basis points.

    As Reuters reported, Spanish financial institutions’ non-performing loan rate reached a 14-year high in February. But can the NPL rate get grimmer?

    On that point, the convergence of commercial banks with the highly troubled cajas de ahorros is of interest, and Execution Noble’s March note on Spanish banks is worth a revisit. (Full version in the Long Room)

    As the note, which focussed on the effects of NPLs in tandem with tightened credit across the sector, argued at the time:

    Our analysis suggests that the Spanish lending market will contract at a rate somewhere between 5% pa and 15% pa over the course of 2010-2013…

    In terms of credit quality, Spanish loan loss charges are set to rise materially as the real estate market continues to deteriorate, the well-known stresses in the developer sector continue, and commercial real estate worsens in typical late-cycle fashion. Material impairment to household debt servicing capacity is anticipated as unemployment rises, the social-safety net wears off, and the forbearance kimono is opened. Debt servicing capacity will be further attenuated because, without the ability to print, wage deflation seems likely in the context of economic austerity.

    The bottom line is that we expect NPLs to peak in 2011.
  2. 1) .....subject to revision! :eek:
    2) Are you considering buying a Spanish villa on the Atlantic or the Mediterranean? :confused: :D
  3. Atlantic :no.
    Mediterranean :yes.