Moody’s - Spanish Banks Will Benefit from Corporates’ Improving Financial Health

Moody’s ha publicado un informe sobre los bancos españoles. Pone de relieve que la recién mejora de la salud financiera de las empresas españolas tiene un impacto crediticio positivo para los bancos españoles porque le permite tener una mayor capacidad de servicio de la deuda y reduce la morosidad e impagos, lo que disminuye los gastos de crédito de los bancos.

Spanish Banks Will Benefit from Corporates’ Improving Financial Health
From Credit Outlook
Last Wednesday, the Bank of Spain published its monthly Economic Bulletin, which showed that Spanish companies had improved in terms of sales, profits and leverage. The improvement in Spanish companies’ financial health is credit positive for Spanish banks because it translates into a greater ability to service debt and reduce delinquencies and defaults, which decreases banks’ credit costs.
Spanish banks’ asset quality troubles started with their exposure to the real estate segment as it was first hit by the country’s financial crisis, causing a significant increase in arrears that particularly affected savings banks. The rise in problem loans soon spread to other sectors, affecting a wider group of banks than those that were initially hit by the real estate crisis.
Spanish companies’ improved performance in the first half of 2014, coupled with the recovery of leading indicators, point to a decline in arrears in coming months. Given that the improvement is widely spread across sectors, the entirety of the banking system is likely to benefit from the improved financial health of Spanish companies. Nevertheless, at almost €56 billion, corporate arrears remain historically high, and credit costs will continue to be a drag on banks’ operating profits until banks’ large stock of problem loans are fully provisioned.
Data published by the Bank of Spain1 show that the gross value added2 of Spanish corporations increased by 2.3% in the first half of 2014, compared with the prior year’s decrease of 3.5%, as well as decreases in 2011 and 2012. The expansion in business activity led to an increase in ordinary net profit (excluding extraordinary items) of 7.7% in the first six months of 2014, versus a 12.6% contraction a year earlier and contractions in 2011 and 2012. Spanish corporations were also able to reduce their debt, continuing a trend that began in 2012 and continued last year, while the ratio of interest-bearing debt to net assets declined 0.5 percentage points in the first half of 2014, contributing to a decline in the debt burden ratio.
1 Based on data provided by the Spanish Central Balance Sheet Data office, which compiled information from 774 companies. These companies represent, in terms of gross value added, 14.2% of Spain’s non-financial corporate sector.
2 Gross value added is a measure of output similar to gross domestic product, defined as the value of goods and services produced in an area minus intermediate consumption.
Analyst Contacts:
MADRID +34.91.310.1454
Alberto Postigo
+34.91.768.8230
Vice President - Senior Credit Officer
alberto.postigo@moodys.com
What is Moody’s Credit Outlook?
Published every Monday and Thursday morning, Moody's Credit Outlook informs our research clients of the credit implications of current events.
BANKING
2 SEPTEMBER 29, 2014
SECTOR COMMENT: SPANISH BANKS WILL BENEFIT FROM CORPORATES’ IMPROVING FINANCIAL HEALTH
In line with corporates’ improved credit profile, the volume of Spanish companies’ nonperforming loans (NPLs) also declined in the first half of 2014, following several years of steep increases that resulted in NPLs peaking at the end of last year (see Exhibit 1).
EXHIBIT 1
Spanish Corporates’ Nonperforming Loans at Spanish Banks
Source: Bank of Spain
With the exception of the real estate sector, leading indicators for Spanish banks’ asset quality also point to corporations’ improved performance. As Exhibit 2 shows, the Purchasing Managers Index has registered above 50 since the end of 2013 and has continued rising this year, reflecting greater business activity and consequently corporations’ improving financial health. Supporting this trend is a recovery of the consumer confidence index, which currently exceeds pre-crisis levels (see Exhibit 3).
EXHIBIT 2
Spain’s Purchasing Managers’ Index and Corporate Nonperforming Loans
Note: In the exhibit, Spain’s purchasing managers’ index is the seasonally-adjusted three month average.
Sources: Markit and the Bank of Spain
€0€10€20€30€40€50€60€Billions0%2%4%6%8%10%12%14%20 25 30 35 40 45 50 55 60 65 Dec-99Jun-00Dec-00Jun-01Dec-01Jun-02Dec-02Jun-03Dec-03Jun-04Dec-04Jun-05Dec-05Jun-06Dec-06Jun-07Dec-07Jun-08Dec-08Jun-09Dec-09Jun-10Dec-10Jun-11Dec-11Jun-12Dec-12Jun-13Dec-13Jun-14Purchasing Managers' Index -
left axisCorporate NPL Ratio -
right axis
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on http://www.moodys.com for the most updated credit rating action information and rating history.
BANKING
3 SEPTEMBER