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Labutes IR
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I'm a portfolio manager within the European Equities team at a mid-sized asset manager. Under my coverage is the financial sector (including Banks, Insurance, Real Estate and Diversified Financials) on a Pan-European basis (Eurozone, UK, Switzerland and Scandinavia). Previously, I've worked as... More
  • Spain's Non-Performing Loans Continue Climbing 4 comments
    Aug 20, 2012 3:31 PM | about stocks: BBVA, BNDSY, BPOP, SAN

    The Bank of Spain reported last Friday the latest data regarding non-performing loans (NPLs) for the Spanish banks as of June 2012. The amount of bad debt increased considerably, being the highest month-on-month increase since June 2008. The NPL ratio for the sector stood at 9.42%, an increase of 46 bps in just one month, reaching a new record since at least 1962. In annual terms, the ratio increased 273 bps.

    The sector coverage ratio stood at 61%, an increase of 5 percentage points from the previous month. This is explained by the higher provision requirements mandated by the recent Royal Decrees, that banks must meet by the end of the year.

    Deposits of households and companies fell almost 7 percent from a year earlier, a trend that should continue due to lower disposable incomes and lack of confidence in the system. This increases the need to deleveraging resulting into less credit concession, and ultimately in a weak growth outlook.

    After securing a €100B ($124B) bailout for its financial system and implementing more austerity measures, including an increase in VAT from 18% to 21%, Spain's economy should continue to show a weak performance putting further pressure on bad loans.

    Asset quality remains one of the biggest concerns for the financial sector and the lack of visibility on this front should continue to block banks' access to credit markets. Indeed, Spanish banks' dependence on the European Central Bank for funding has increased recently hitting a new record high of €375B ($465B).

    (click to enlarge)

    Source: Bloomberg

    Given that the sovereign relies on domestic banks to buy its bonds, the increasing banks woes makes it more likely that the Spanish sovereign will need a bailout. This is especially negative for domestic banks like Banco Popular (NASDAQ:BPOP) or Banco Sabadell (OTCPK:BNDSY), but also for the two largest banks Santander (NYSE:SAN) and BBVA (NYSE:BBVA).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: BBVA, BNDSY, BPOP, SAN
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Comments (4)
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  • Caiman Valores
    , contributor
    Comments (2293) | Send Message
    For the same period BBVA's NPL remained steady at 4% and SAN's group average only grew by 13 bps. It would be interesting to see the banks which contributed the biggest rise and the loan types. Overall though it certainly doesn't bode well for Spain or the Spanish economy which is going to be contracting for some time yet.
    21 Aug 2012, 01:34 AM Reply Like
  • Labutes IR
    , contributor
    Comments (213) | Send Message
    Author’s reply » Indeed, BBVA's and Santander's asset quality is above average but with NPL's surging as fast I would expect both banks to also be hit. Naturally, banks/cajas with higher exposure to the south of Spain will be most affected. In July, I've spent 10 days on vacations near Malaga and I could perceive by some conversations a very low level of confidence due to high unemployment and contracting economic activity, therefore I would expect this rising trend of NPL's to continue for some time.
    21 Aug 2012, 06:18 AM Reply Like
  • lizloansbest
    , contributor
    Comment (1) | Send Message
    What a great loss in the spanish economy on that matter. I hope it would not happen to my country's economy as it would be very hard. Having a bad credit nowadays is really a disaster.
    23 Aug 2012, 12:14 PM Reply Like
  • Caiman Valores
    , contributor
    Comments (2293) | Send Message
    liz I would agree it has been a tragedy for Spain and the Spanish people and the current situation is going to create a lost economic decade particularly for anyone under 25 who are the hardest hit. When I was last in Argentina I met a large number of young Spaniards who had gone there to find work. Given the problems in Argentina including high inflation, high unemployment and social and economic instability it was surprising and only reinforced how bad the economic situation in Spain is.
    23 Aug 2012, 08:06 PM Reply Like
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