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What’S Up With Spanish Mortgage Lending?

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http://ftalphaville.ft.com/blog/2010/07/20/291316/whats-up-with-spanish-mortgage-lending/

The non-performing pain in Spain is back in the limelight.

The total stock of non-performing loans sloshing around the Spanish banking system hit €100bn in May, according to data from the Bank of Spain released on Monday.

Then again, broader trends in loan growth are also of interest as the pain in Spain turns toward deleveraging of debt. In particular, loans related to Spain’s real estate crash.

As Santiago López Díaz of Credit Suisse noted from May’s data (emphasis ours):

The most important points, in our view, however, have to do with: a) the decline in non mortgage lending, which is already falling at a -5.5% YoY rate and is the main factor responsible for the overall decline in the Spanish financial system and B) the surprising stabilisation in the YoY rate of growth in mortgage lending (up 0.8% YoY) something, that, in our opinion, is not consistent with the current market environment (high unemployment, 44% and 90% declines from their peaks in home sales and building permits, respectively, bankruptcy of major real estate developers), even considering the marginal recovery in sales during the past months. The stabilisation raises questions, in our view, about potential restructurings in the sector (both to individuals and companies).

This does indeed stick out a bit as Spanish banks (and borrowers) generally embark on some overdue deleveraging. As López Díaz continues, real estate exposure is still high (emphasis ours):

It is remarkable to see that even though total lending to real estate developers has turned negative at the end of March 2010 (last available data) the contraction is quite limited given the correction in the real estate sector. In fact, up until the end of 2009 the exposure to developers had not declined in spite of the bankruptcy of several companies involved in the sector. Banks are gradually reducing their exposure to the segment (-3.4% YoY) while Cajas continue to increase (+1.1% YoY) according to our estimates base of information released by Bank of Spain.

However, cajas have been reporting improvements in their NPL ratios even as banks report deteriorations. In particular, note how pliable the statistics look around certain periods:

Spain_NPLs1-e1279626438938.jpg

.........

Stressed sand-castles

But where does this mess fit into the European bank stress tests?

Well, Credit Suisse aren’t that bothered about what the results will say about haircuts on Spanish banks’ holdings of domestic sovereign debt.

That’s on the theory that if the Kingdom of Spain was ever brought close to default, it’d probably go the whole hog rather than the 3 per cent haircut that the tests seem to have in mind. And, well — there’s historical precedent for that view.

Instead, they’d rather see some gore in markdowns on real estate loans:

This is the area, in our view, that would be more deeply analysed by the markets. We don’t know yet what assumptions have been used by Bank of Spain. There are several types of real estate assets but the potential mark downs for certain types of assets, in a stress scenario, could surpass 50% (or even significantly more than that) in certain areas of the country.

Fitch already obliged with some own-brand stressing. With bad results for the cajas.

Still it's all contained.

Spain is recovering and everything will be fine.......

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Shhhhh!.

dont want any Stress...

More off plan and Sangria anyone? They're a great investment according to leading agents.....

The most revealing thing is that Fitch does not give a healthy rating to the Cajas. I really wonder if the market will accept the results of the EU banks stress tests. We'll soon find out as it all comes out. No doubt everything will appear rosy for most of them and markets will move up for a moment. But a little digging later, what will happen.....?

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More off plan and Sangria anyone? They're a great investment according to leading agents.....

The most revealing thing is that Fitch does not give a healthy rating to the Cajas. I really wonder if the market will accept the results of the EU banks stress tests. We'll soon find out as it all comes out. No doubt everything will appear rosy for most of them and markets will move up for a moment. But a little digging later, what will happen.....?

you mean the stressless stress tests?

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you mean the stressless stress tests?

Yes - exactly.

Weed out thos bits that fail the stressless stress test. Change the terms of reference, then re-test with a less stress stressless test.

BINGO - like GCSE's you cannot fail.

The stressless stress recovery continues with less stress.

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Yes - exactly.

Weed out thos bits that fail the stressless stress test. Change the terms of reference, then re-test with a less stress stressless test.

BINGO - like GCSE's you cannot fail.

The stressless stress recovery continues with less stress.

at whos behest is the re-test of a stressless stress test?

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It's an interesting post. Many things in the post are informative. The world economy still suffering after the recession and need to be balanced. Hope the next year will bring some good news.

Thanks

Alan Noblitt

It will take years to bring balance.

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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