Spain has endured a sovereign debt crisis, property crash and sector-wide restructure. Danielle Myles looks at the impact on its biggest banks’ loan portfolios.

This year will round off a bumpy decade for Spain’s banks. First, they were hit by the global financial crisis in 2007, followed by the bursting of Spain’s property bubble, the eurozone crisis (in which the country narrowly avoided a full-blown EU bailout), and the government-led restructuring of the country’s troubled savings banks (cajas).

The consensus is that the worst of Spain’s financial crisis is over, a claim supported by the improved health of its lenders. No longer Europe’s most overbanked country, Spain’s cajas have gone from numbers of about 45 in 2009 to just a handful today, and five of the six banks that participated in this year’s EU-wide stress tests performed well. The changing composition of the biggest Spanish banks’ loan books illustrates the industry’s journey over the past 10 years.

Figures for non-performing loans (NPLs), that is, those due for more than 90 days, and impaired loans, those overdue or unlikely to be repaid in full, suggest stress among Spain's lenders peaked in 2013. Since then, figures for both have declined year-on-year, although at a slower rate for NPLs.

Between 2013 and 2015, impaired loans dropped by 38.16% and NPL ratios by 2.4%. In 2015, the average NPL ratio among Spain’s leading banks was still significantly higher than the 3.62% average of The Banker’s Top 1000 banks.

According to a report in August, rating agency Moody’s expects Spanish banks' problem loans to continue to decrease over the next 12 to 18 months. This is consistent with the average allowances made for loan losses in 2016: $9.05bn, down from the $10.83bn put aside for losses in 2015.

These provisions are a barometer of loan performance in the coming year and, in retrospect, they show how well prepared banks were for periods of stress. In 2006, Spain’s biggest banks were incredibly prudent, on average putting aside $2.23bn when impaired loans amounted to just $1.6bn the following year.

In 2012 the banks increased provisions by 70.85%, substantially more than in any of the previous years, in preparation for the difficulties of 2013. They increased provisions again for 2014, but by then NPLs and impaired loans were falling.   

Over the past six years, Spain's banks have also drastically reduced their exposure to the real estate sector, the collapse of which sparked the Spanish recession. Between 2010 and 2015, the average volume of mortgages recorded on the biggest 10 banks’ balance sheets dropped 32.32%. 

The proportion of mortgages that comprised their gross total loans reduced from 53.52% in 2010 to 46.5% in 2013. However, by 2015 this had nudged back up to 48.88%, a trend consistent with the Bank of Spain’s sector-wide findings in its financial stability report released in May.

This says new mortgages, as a proportion of total mortgage credit, grew from 3.2% in 2014 to 3.8% in 2015, suggesting that Spain’s banks are increasing lending to homebuyers.

Data bank Spain 1116

All figures are based on data collected by www.thebankerdatabase.com

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