Transfer of NPLs to Sareb Lowers NPLs in Spain's Banking System

If one were to merely cursorily glance at the headlines, one would be under the impression that NPLs in Spain have finally begin to decline. For instance, the WSJ entitled its article on the topic “Spain's Bad Loans Drop Sharply”. Only if one bothers to actually look at the article itself does it become clear that NPLs have not really dropped, but have merely been shifted to the 'bad bank' set up by Spain's government.


“The Bank of Spain said Monday that bad debts held by the country's banks dropped sharply in December from November because of the transfer of lower-quality credit portfolios to the so-called bad bank that started operations that month.

Nonperforming loans fell by €24.1 billion ($32.20 billion) to €167.4 billion, or 10.4% of total outstanding loans, in December, preliminary data from the central bank showed. That compares with a bad-loan ratio of 11.4% in November, the highest ever recorded.

At the same time, total loans shrank to €1.604 trillion from €1.683 trillion, largely the result of loan reclassifications after the lower-quality loans were passed on to SAREB, as the bad bank is known, the Spanish central bank said in a statement.

Spanish banks, reeling from the crash of a decadelong housing boom, are expected to transfer around €60 billion worth of impaired assets to the bad bank. This was created as part of a deal to receive €39 billion worth of European Union aid for the country's troubled banking sector.

Until November, bad loans had risen for 20 months in a row as a result of soaring defaults by home builders and fast-rising unemployment. Eight banks are due to receive €38.87 billion through a European Union credit line that was extended to the Spanish government last year to bail out the country's troubled banks.”


(emphasis added)

However, does this mean that there has actually been a genuine reduction in bad loans? After all, the figure cited above – namely that bad loans fell by € 24.1 billion – doesn't tell us how many loans were actually transferred. In order to find this out, one has to consult a recent Exane research report on Spain's banks. It contains the following table and chart. Note that the table sums up the bad loans transferred by the end of 2012.



Assets to Sareb


NPLs transferred by Spain's banks to Sareb in late 2012.



As the chart of the NPL percentage indicates, this should lead to an equivalent drop in the percentage, ceteris paribus:



NPL ratio

Spain's NPL ratio, before and after the transfer of bad loan assets to Sareb – click for better resolution.



If we interpret all the above data points correctly, the only conclusion one can come to is that bad loans in the Spanish banking system have not declined, but have actually increased further – namely by about €12.5 billion.

€36.695 billion in loans were transferred, but the overall decline in bad loans amounted only to € 24.1 billion. It follows logically that the difference between these two numbers represents the actual increase in bad loans in the system.

Of course one may well regard the assets now held by Sareb as being 'outside' of the system. However, the point remains that these are bad loans, regardless of who holds them. Thus the increase in NPLs in Spain apparently continues unabated.



Charts by: BNP-Paribas / Exane



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3 Responses to “Bad Loans Drop in Spain – Seemingly”

  • mc:

    Unfortunately, as in just about every bubble, the rush of cheap money is so great that anything and anywhere ends up with a building on it regardless of the suitability. The reason so many of these loans are bad is that so many of the assets backing them are junk. Many of the failed projects were maintenance intensive and thus rapidly degrade, such as golf courses, airports, apartment complexes, and tourism projects. The big Spanish banks sitting on this pile of now-dubious assets went international, sloshing their money around where they had never been before. Santander was buying small regional mortgage lenders in the US and Japanese retail banks.

  • I have heard some of Spain is pretty nice. They giving good deals on homes yet?

    • jimmyjames:


      I’ve just recently read “somewhere” from a Spaniard that seemed to have a good handle on it–most of the houses built in Spain during the mania have a high ask and no bid-because they are falling apart because of no building code enforcement-
      If I can remember where–I will post the link-

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