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Rising bad loans signal more pain for Spanish banks

Sabadell and Bankinter have been hit by big writedowns on soured realty assets

Image Credit: AP
Christian, 33, holds a banner calling to “Stop Evictions” during a protest in Barcelona. Mostbanks in Spain will take the last hit from property-related writedowns in fourth-quarter results,putting the worst of the crisis behind them.
Gulf News

Madrid: Rising bad loans at Bankinter and Sabadell point to more pain ahead for Spanish banks as they near the end of a deep clean of rotten property assets which hammered profits last year.

Though Sabadell and Bankinter are among Spain’s healthier lenders which did not need rescue funds from Europe, both have been hit by big writedowns on soured real estate assets in the wake of the Spanish property crash.

The drive to mark down toxic assets pushed Spain to request up to 100 billion euros (Dh495 million, $133 billion) in aid from Europe in 2012 for banks in need of capital and unable to cope.

Most banks in Spain will take the last hit from property-related writedowns in fourth-quarter results, putting the worst of the crisis behind them. But a deep recession is still hurting their loan books and there is little sign of a quick recovery.

Barcelona-based Sabadell said on Thursday its bad loan ratio jumped to 9.33 per cent of total loans at the end of December from 8.46 per cent in September, largely as a result of the integration of its 2011 purchase of stricken savings bank CAM.

“It’s a level implying a fourth-quarter rise ... far above our expectations,” said Nuria Alvarez, analyst at Madrid broker Renta4. She added the bad loan ratio was an area to watch at Sabadell even though the lender has a state-backed scheme in place to protect it against future losses after it bought CAM.

Spanish banks’ bad loan rate reached a new high in November of 11.4 per cent of the outstanding portfolio, and the country is predicting its economy will only really improve in 2014.

Its unemployment rate reached a record high of 26 per cent in the fourth quarter, data showed on Thursday.

Sabadell is closing in on the purchase of assets in the northern region of Catalonia and Aragon from Banco Mare Nostrum (BNM) and Chairman Josep Oliu said the bank would also study the purchase of Catalunya Banc, which was bailed out by the state and is now being auctioned.

Spain is keen to sell Catalunya Banc without a state-backed guarantee, sources familiar with the matter have told Reuters.

“Sabadell has the necessary capacity to undertake additional corporate operations in the context of the banking restructuring if economic conditions are favourable and risks are sufficiently covered,” Oliu said.

Mid-sized Bankinter

Sabadell said it booked just over 2.5 billion euros of provisions on troubled loans and assets, sending 2012 profit down 65 per cent to 82 million euros. The lender said it still had more provisions to take on real estate assets in 2013.

The integration of CAM helped Sabadell grow net interest income - the net amount earned from interest on assets - by 21.5 per cent to 1.8 billion euros as its client base jumped.

The purchase also resulted in so-called “negative goodwill” of 933 million euros that partially helped offset the profit decline. Negative goodwill is a gain booked when the price paid for an acquisition is less than the value of the assets.

At 1000 GMT, Sabadell’s shares were down 0.2 per cent at 2.141 euros.

At mid-sized Bankinter, less exposed than many peers to Spain’s property woes, the bad loan ratio rose to 4.28 per cent at the end of 2012 from 4.02 per cent at end-September.

The results were “neutral to a tad negative”, said Flemming Barton, an analyst at CM Capital Markets in Madrid in a note, adding the lender beat net profit expectations but posted a bigger-than expected increase in non-performing loans.

Bankinter’s profit dropped 31 per cent to 125 million euros in 2012, while net interest income grew 22 per cent to 660.3 million euros.