Fitch: Spanish Banks’ NPLs Surge

The reclassification of Spanish bank loans as non-performing following state intervention is the primary driver behind a recent spike in Bank of Spain non-performing loan data. Outside of these weaker savings banks or cajas, the general deterioration in the economy and assets is at a pace more in line with the long-term trend, Fitch Ratings says.

Impaired loans increased in March to EUR148bn from EUR112bn the previous March, while the amount of outstanding loans shrunk to EUR 1,768bn from EUR 1,824bn. This NPL data could increase again when doubtful loans are included and Bankia’s results are audited. We may also see another spike in NPL data after the independent valuation of Spanish banks’ real estate portfolios by Roland Berger and Oliver Wyman, which is expected later this year.

NPLs typically increase after state intervention because the Fund for Orderly

Bank Restructuring (FROB) insists on more conservative loan classification when it lends to a troubled bank to assuage perspective investors’ concerns about hidden problems.

The largest increase in NPLs came from CAM, which failed in July and was merged into the newly-formed Banco CAM. In this case, NPLs increased for the 2011 calendar year by EUR6.9bn or 149%. Catalunya Caixa and Banco de Valencia also saw large increases of 103% (EUR4bn) and 147% (EUR1.7bn), respectively, after state aid. In total, banks that received some form of state aid accounted for nearly half of the increase in NPLs.

The Spanish banks with stronger credit profiles saw an increase more in line with the persistent, but gradual, build up of NPLs, especially for real estate developers. NPLs at BBVA’s parent increased by 0.5% (EUR56 million) to stand at EUR11.2bn during the calendar year 2011, while Santander’s parent (Spanish) saw a 36% (EUR2.6bn) increase to a total of EUR9.6bn over the same period.