In the real-estate business in Spain, BBVA has continued to reduce its exposure to the developer segment, while the sale of properties has continued at a good rate.
Industry Trends
Real-estate activity in the country is currently immersed in a process of adjustment of the imbalances accumulated in recent years. Some of them have already been corrected to a significant extent, above all those related to the high proportion of residential construction in Spain's gross domestic product, which has been reduced from the peak of 2007. In the last months of 2013 the slight improvement of the economic climate has begun to be reflected, albeit slowly, in the real-estate sector, which despite its fragility is showing signs of stabilization in sales and prices, especially in those markets which are more attractive to foreign investors. In addition, the decline in production is resulting in a gradual reduction of excess stock, thus easing the pressure on prices. Financial conditions remain attractive in the mortgage market, with interest rates and affordability ratios at record lows. However, the lack of liquidity continues to hinder the full development of residential demand. Forecasts suggest a better performance in both sales and prices throughout 2014.
Earnings and Activity
A significant aspect of the area's income statement is a volume of loan-loss provisions clearly lower than in 2012, as well as a year-on-year pick-up in sales of foreclosed properties.
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| Real Estate | Millions of Euros | ||
|---|---|---|---|
| 2013 | 2012 | % Change | |
| NET INTEREST INCOME | (3) | (20) | (87.1) |
| Net fees and commissions | 8 | 18 | (54.0) |
| Net gains (losses) on financial assets and liabilities and net exchange differences | 67 | (29) | n.m. |
| Other operating income and expenses | (111) | (53) | n.m. |
| GROSS INCOME | (38) | (84) | (55.0) |
| Operating expenses | (152) | (126) | 20.5 |
| Administration costs | (130) | (103) | 26.3 |
| Personnel expenses | (86) | (60) | 44.9 |
| General and administrative expenses | (43) | (43) | 0.6 |
| Depreciation and amortization | (23) | (24) | (4.7) |
| OPERATING INCOME | (190) | (211) | (9.7) |
| Impairment losses on financial assets (net) | (643) | (3,799) | (83.1) |
| Provisions (net) and other gains (losses) | (1,008) | (1,695) | (40.6) |
| OPERATING PROFIT/ (LOSS) BEFORE TAX | (1,840) | (5,705) | (67.7) |
| Income tax | 595 | 1,659 | (64.1) |
| PROFIT FROM CONTINUING TRANSACTIONS | (1,245) | (4,046) | (69.2) |
| Profit from discontinued transactions (net) | - | - | n.m. |
| PROFIT | (1,245) | (4,046) | (69.2) |
| Profit attributable to non-controlling interests | (9) | 3 | n.m. |
| PROFIT ATTRIBUTABLE TO PARENT COMPANY | (1,254) | (4,044) | (69.0) |
The changes in the principal headings of the income statement of this business area are:
“Net interest income” for 2013 is a negative €3 million, compared with losses of €20 million in 2012.
The balance under the heading “Net fees and commissions” totaled €8 million, compared with €18 million in 2012.
As of December 31, 2013 “Net gains (losses) on financial assets and liabilities” and “Exchange differences (net)" totaled a positive €67 million, compared with losses of €29 million in 2012.
“Net interest income” is a negative €111 million, compared with losses of €53 million in the previous year.
As a result, "Gross income" in 2013 is a negative €38 million, compared with a negative result of €84 million in 2012.
The balance of "Operating expenses" for 2013 is €152 million, up 20.5% on the €126 million registered in 2012, due to the increase in the workforce assigned to the area to carry out separate and specialized management of this business and cope with the increase in activity.
As a result, “Operating income” for 2013 is a loss of €190 million, compared with a negative €211 million in 2012.
In 2013, the balance under the heading “Impairment losses on financial assets (net)” amounted to €643 million, a figure significantly lower than the €3,799 million posted in 2012, due to the fact that high impairment losses on the assets related to the real-estate and developer sector in Spain had been registered that year.
The balance under the headings “Provisions (net)” and “Other gains (losses)” in 2013 is a negative €1,008 million, a less negative result than the €1,695 million in losses posted in 2012, due to lower loan-loss provisions for real estate.
As a result of the above, "Income before tax" for 2013 is a €1,840 million loss, a significantly lower figure than the negative €5,705 million registered at the close of 2012.
The balance of “Income tax” for 2013 amounted to a positive €595 million, compared with the positive €1,659 million registered in the previous year.
“Net income attributed to parent company” for 2013 is a loss of €1,254 million, much lower than the €4,046 million loss posted in 2012, due basically to the lower impairment losses on real-estate assets, as indicated above.
With respect to banking activity, the keys in 2013 are the reduction of net exposure to the real-estate sector and the positive rate of sales of properties.
BBVA's net exposure to the real-estate sector in Spain continues to decrease. As of December 31, 2013, the balance stood at €14,570 million, down 1.5% on the close of the previous quarter and 6.5% below the figure posted at the end of 2012. Within the exposure to the Spanish real-estate sector, properties from residential mortgage loans are up 14.6% year-on-year. This increase, as mentioned earlier, is closely linked to the increase in gross additions to NPA in this portfolio in 2008 and 2009.
In 2013 there has been an increase in the balance of non-performing assets in the developer segment, basically in refinanced loans. It is worth noting that a significant percentage of the volume of non-performing loans corresponds to customers who are currently up-to-date with their payments.
The rate of growth of sales of real-estate assets has picked up in the latter part of 2013. For the year as a whole, accumulated sales total 21,383 units, of which 6,993 are made on behalf of third parties.