Moody’s , favorable con los bancos españoles

Maria Cabanyes, analista senior en Moody’s. - Miercoles, 21 de Enero

• 
• 
• 
• 
• • 
  • 
  • 

Moody’s ha publicado un informe sobre la banca española, que conoce una estabilización de los niveles de los préstamos en mora en sus balances. Moody’s cree que los préstamos en mora han alcanzado a un pico y, mientras que un cambio siginifcativo sea poco probable, el retorno al crecimiento economico y la caída del desempleo van a mejorar las perspectivas de los bancos españoles. Moody’s también está viendo una desaceleración en el ritmo de la disminución de los precios de la vivienda, mientras que la tendencia para el apalancamiento de los hogares está mejorando.

Leading Indicators Signal Peak in
Spanish Banks' Problem Loan Levels
Summary
The following report is a supplement to the special comment “Leading Indicators of Asset-Quality for Banks
in Western Europe” published on 16 December 2013.
The leading indicators we track to assess the health of the Spanish banking sector point
to a stabilization in the level of Non-Performing Loans (NPL) on banks' balance sheets
- the most pressing problem for the country's financial institutions since the onset of the
economic crisis. While a significant turnaround in the level of NPLs is unlikely in the
near future, we believe they have reached their peak. The return to economic growth
and falling unemployment is boosting business and consumer confidence, further
bolstering banks' prospects. We are also seeing a slowdown in the pace of house price
declines, while the trend for households' leverage is improving - even though the total
indicator readings are still weak.

Note: In the column “Asset Quality Implications” we indicate our expectation of the future trend for problem loans in the next
12-18 months. Red downward arrows indicate asset quality deterioration, green upward arrows indicate improvement, and
orange arrows indicate stability/uncertainty. *Calculated as 2014 average lending rate relative to 2013 average lending

Recent Results and Long Term
Our first leading indicator – residential real estate prices - is finally stabilizing after house prices slumped by almost a third in
the past seven years. While it merely shows that the pace of property price declines has been slowing over recent quarters rather
than a recovery in prices, it still gives us comfort. To us it signals that the stock of bad housing loans and problem loans made to
residential property developers will grow at a much weaker rate in the near future.
While the collapse of the construction boom in early 2008 has pushed down residential real estate prices by 30% up to now,
according to data from the Spanish ministry of Development, the speed of the decline has been much weaker in the past two
years. In December 2012 the annual decrease stood at 10.0%, a year later house prices fell by 4.2%.
We have seen a similar trend with the stock of consumer loans which had grown rapidly over several years preceding the crisis
until peaking in 2008. Between 2000-07, lending to consumers grew at annual rates of between 10%-20%, with the volume
of outstanding consumer loans almost tripling. Since its peak in 2008 the stock of consumer loans has fallen by 36%, bringing
households' leverage levels closer to the European Union average.
On a more positive note, the manufacturing Purchasing Manager's Index (PMI), a key forward-looking indicator measuring
the health of the manufacturing sector, has been rising since June 2013, reaching a reading of 54 in December 2014 (a reading
above 50 signals economic expansion) - a massive improvement from September 2008 when it plummeted to 30. We should
note, however, that the performance of this index shows a degree of volatility which complicates identifying clear trends.
Another encouraging signal is provided by the Consumer Confidence Index, which tells a similar story to the PMI: a recovery in
the index since December 2012 after a big dip. The overall recovery of the Consumer confidence Index makes up close to 80%,
comparing the value registered in December 2008 (the lowest of the index since 1999) and the level reached in December 2014.
The index currently stands at pre-crisis levels, as consumers are more optimistic about their future economic situation.
Our final tracked indicator – lending rates for non-financial corporations - remains neutral. After peaking in September 2008,
borrowing costs have come down to levels similar to the pre-crisis period and have remained relatively stable for the past three
years.
These indicators, which we deem neutral or positive, together with our expectations for a moderate economic recovery lead us to
conclude that Spanish NPLs have already reached their peak and will from now on stabilize or even slowly decline. Having said
that, the stabilization process will take time and a significant reduction of the NPL stock is unlikely in the near future. This will
mostly hinge on the speed and resilience of the economic recovery.
What the Indices and NPLs Tell Us – Stabilization Story
The Neutrals
House Price Growth
This leading indicator reflects the overall state of the housing market, and allows us to identify house price bubbles that can
adversely affect the future performance of the residential mortgage and commercial real estate segments.
After several years of strong growth, the sharp decline in Spanish house prices, which started in 2008, reduced householders'
equity value in their homes, reducing their incentive for to service their debt. Likewise, strong house price growth pre-crisis
fuelled housing construction; this resulted in an oversupply and bankrupting many of the country's real estate developers.
This exposed banks to a massive growth in residential mortgage and commercial real estate loan arrears, with the arrears for
commercial real estate increasing much more dramatically.
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
3 20 JANUARY 2015 SPANISH BANKS: LEADING INDICATORS SIGNAL PEAK IN SPANISH BANKS' PROBLEM LOAN LEVELS
The current trend in the indicator shows that, although house prices are still falling, over the last two years the pace of the
year-over-year price declines is slowing. The imbalance between housing supply and demand is reducing, as new housing
construction has been almost negligible since 2009 and statistics show a recovery in the number of housing transactions1 in the
last two years. This indicates that downward pressure on the performance of residential mortgages and commercial real estate
loans - the latter being one of the principal drivers of Spanish banks’ asset quality deterioration during the crisis - is easing.
In June 2014, nonperforming loan levels for residential mortgages fell for the first time in four years, dropping by 22 basis
points compared to the previous quarter2 . Altogether, all previously mentioned trends point to a future stabilization in
residential mortgage NPL ratios. Our view of a stabilization is also supported by the full recourse nature of residential mortgages
in Spain, which is a mitigating factor limiting the negative impact of the economic situation and high unemployment on asset
quality deterioration.
In terms of lending to real estate and construction companies, the arrears for this asset class decreased for the first time in six
years in March 2014 (not taking into account the decreases due to a transfer of real estate assets to Sareb3 in December 2012
and February 2013) and decreased slightly again in September 2014 to 36.3%. For this particular asset class we also expect a
stabilization, but with no significant reduction in NPL rates in the near future because of the oversupply of properties in the
market.

House price decline is slowing
Source: Ministry of Development, Bank of Spain
Consumer Loan Growth
This indicator is used to monitor NPLs coming from banks’ exposure to retail consumer loans. Strong growth in consumer
lending can serve as an early warning sign of loosening lending standards; in addition it poses a credit risk because of the
increase in households' leverage. It can also mask the impact of credit issues in the NPL ratio through the rapid growth of the
denominator.
A dramatic increase in consumer lending between 2000-07 - when lending to consumers grew at annual rates of between
10%-20% - was followed by a surge in arrears once the economy faltered. By the end of 2013, NPLs in this segment had
multiplied by four compared to the amount as of the end of 2007.
Consumer NPLs stabilised in March 2014, following a period of decline in the volume of consumer loans - especially acute in
2012 and 2013 - with positive implications for households' leverage and which also indicates a tightening in consumer lending
standards. The pressure on the performance of this segment should ease further.
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
4 20 JANUARY 2015 SPANISH BANKS: LEADING INDICATORS SIGNAL PEAK IN SPANISH BANKS' PROBLEM LOAN LEVELS
Our expectation for consumer NPLs is supported by a brighter economic outlook and lower unemployment4 (Spain returned
to growth in Q3 2013 and unemployment started to decrease in Q2 20135 ), which should help to improve the performance of
household debt.

Consumer lending is returning to more normalised levels
Source: Bank of Spain
Non-financial Corporations Lending Rates
We track this indicator as higher lending rates imply more onerous debt-servicing costs thus translating into higher
delinquencies for the corporate sector. The indicator therefore correlates to the performance of corporate NPLs.
In recent years, low interest rates have helped offset the negative impact of Spain’s deep and lengthy recession on corporate loan
performance, easing the repayment burden for companies. The impact has been more favorable on secured loans, as they usually
have adjustable rates.
This indicator has remained stable over the last few years, and we expect it to maintain this trend in the foreseeable future
given the current low interest rate environment. In consequence, we do not expect that corporate NPLs will rise due to higher
borrowing costs.

We expect corporate lending rates to remain stable
Source: Bank of Spain
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
5 20 JANUARY 2015 SPANISH BANKS: LEADING INDICATORS SIGNAL PEAK IN SPANISH BANKS' PROBLEM LOAN LEVELS
The Positives
Purchasing Managers Index
This indicator reflects the health of the manufacturing sector and anticipates changes in the credit performance for corporates
and small and medium sized enterprises (SME). For most of the crisis the index has kept a reading of below 50, signaling
contraction. It started to recover in December 2012 and exceeded the 50 mark in the second half of 2013, pointing to a return
of growth in the sector.
The recovery in the manufacturing sector translates into greater business activity and improving companies' finances. This eases
pressure on the corporate NPLs ratio, which has retreated from its peak of 12.9% in December 2013to 11.9% in September
2014. As the economic recovery continues and the operating environment for Spanish companies improves we expect a further
slow decline in corporate NPLs.

PMI Index has recovered and keeps above 50 throughout 2014
Source: Haver, Bank of Spain
Consumer Confidence Index
This indicator tracks consumer expectations about their future financial situation, general economic development,
unemployment expectations and savings. This indicator started to recover in March 2013, and has recently returned to pre-crisis
levels. The significant recovery indicates overall optimism and a recovery of private consumption dynamics.
This index is similar to the PMI in that it is more volatile than the other indicators we track; however both signal an improving
trend in the operating environment in Spain and support our forecast of a slow reduction in corporate delinquencies rates.
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
6 20 JANUARY 2015 SPANISH BANKS: LEADING INDICATORS SIGNAL PEAK IN SPANISH BANKS' PROBLEM LOAN LEVELS

Consumer confidence is recovering and approaches pre-crisis levels
Source: Bank of Spain
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
7 20 JANUARY 2015 SPANISH BANKS: LEADING INDICATORS SIGNAL PEAK IN SPANISH BANKS' PROBLEM LOAN LEVELS
Endnotes
1 NPLs per asset class are only reported quarterly.
2 Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, a government-initiated “bad bank”.
3 According to the data of Spanish Ministry of Development.
4 Please also refer to the latest published sovereign analysis on Spain.
5 According to seasonally adjusted data of Spanish National Statistics Institute.
 

[Volver]