Spanish Banks: Prepared to Start a New Chapter on Asset Quality

Nearly ten years after the collapse of the Spanish property market, DBRS Ratings Limited (DBRS) considers Spanish banks are ready to start a new chapter on asset quality. This is because most banks have significantly reduced problematic assets, particularly in the last twelve months, including both Non-Performing loans (NPLs) and Foreclosed Assets (FAs).

NPLs have been materially reduced and most Spanish banks are approaching the European bank NPL average. Nevertheless, NPLs for the banking sector remain above pre-crisis levels and DBRS estimates that it could take up to 3 years at the current pace of reduction to reduce NPLs to pre-crisis levels. DBRS views it to be less likely that Spanish banks will close sizeable NPL sale transactions but rather expects banks to seek the foreclosure of assets as the main way to recover NPLs.

Some banks still have relatively high proportions of real estate FAs. Overall, DBRS expects that medium-sized banks with moderate levels of FAs will continue to focus on managing down these exposures through retail sales. However, banks with a higher stock of FAs may seek to reach disposal agreements with investors in order to completely remove the risks from their balance sheets.

Nevertheless, DBRS considers the current stock of problem assets does not pose a significant risk for the banks as they remain committed to continuing to reduce these assets. In addition, they should benefit from the current sound economic prospects in Spain, positive Spanish property market environment and ongoing investor and retail appetite for Spanish real estate assets.

In this commentary, DBRS analyses the following Spanish banks: Banco Santander, BBVA, CaixaBank, Bankia, Banco de Sabadell, Bankinter, Abanca, Liberbank.

The full commentary is available at www.dbrs.com