Non Core Real Estate
Highlights
- Data related to the Spanish real-estate sector continues their positive trend.
- Boost to the area's strategy, focused on accelerating sales and reducing stock, while aiming to preserve the economic value of assets.
- Further decline in net exposure and NPLs.
Industry trends
The real-estate sector remains on an upward path, although the pace of growth continues to be unequal across different autonomous regions, highlighting the uneven recovery in the Spanish residential market.
According to the latest available information from the General Council of Spanish Notaries (CIEN), over the first eight months 342,500 homes were sold in Spain in the first eight months of 2017, a year-on-year increase of 15.3%. This increase continues to be underpinned by the positive performance of the economy, although the latest Social Security registration data for August show a slowdown in the pace of job creation, which will have to be monitored carefully in the coming months. Households, meanwhile, remain relatively upbeat regarding the economic outlook.
Demand momentum once again fed through to price The price of homes rose 5.6% year-on-year according to the latest figures from the National Institute for Statistics (INE). This rate of increase is slightly higher than at the close of the previous quarter (up 5.3%).
The expansive monetary policy stance continues to impact the cost of finance, which remains at record lows, and is mortgage market. The 12-month Euribor reached a new record low in September (-0.168%). New residential mortgage lending, without stripping out refinancing, increased by 16.8% year-on-year in the first eight months of the year, according to data from the Bank of Spain. Taking into account refinancing, new lending fell by just 0.3% year-on-year in the same period.
Construction activity is still responding to the positive impetus from demand. According to data from the Ministry of Public Works, 49,238 new housing construction permits were approved in the first seven months of the year, up 24.4% on the 39,578 permits which were approved during the same period last year.
Evolution of Net exposure to real-estate
(Million euros)
- (1) Compared to Bank of Spain’s Transparency scope (Circular 5/2011 dated November 30), real-estate developer loans do not include €1.2 Bn (September 2017) mainly related to developer performing loans transferred to the Banking activity in Spain unit.
- (2) Other real-estate assets not originated from foreclosures.
Coverage of real-estate exposure (Million of euros as of 30-09-17)
| Gross Value | Provisions | Net exposure | % Coverage | |
|---|---|---|---|---|
| Real-estate developer loans (1) | 4,791 | 2,011 | 2,780 | 42 |
| Performing | 1,434 | 31 | 1,403 | 2 |
| Finished properties | 1,041 | 23 | 1,018 | 2 |
| Construction in progress | 232 | 3 | 229 | 1 |
| Land | 108 | 4 | 104 | 4 |
| Without collateral and other | 52 | 1 | 51 | 2 |
| NPL | 3,357 | 1,980 | 1,377 | 59 |
| Finished properties | 1,270 | 568 | 702 | 45 |
| Construction in progress | 150 | 68 | 82 | 46 |
| Land | 1,482 | 966 | 515 | 65 |
| Without collateral and other | 455 | 377 | 78 | 83 |
| Foreclosed assets | 11,937 | 7,418 | 4,519 | 62 |
| Finished properties | 7,333 | 4,049 | 3,284 | 55 |
| Construction in progress | 599 | 398 | 201 | 66 |
| Land | 4,005 | 2,971 | 1,034 | 74 |
| Other real-estate assets (2) | 1,047 | 517 | 529 | 49 |
| Real-estate exposure | 17,774 | 9,947 | 7,828 | 56 |
- (1) Spain’s Transparency scope (Circular 5/2011 dated November 30) real-estate developer loans do not include €1.2 Bn (September 2017) mainly related to developer performing loans transferred to the Banking activity in Spain unit.
- (2) Other real-estate assets not originated from foreclosures.
Activity
BBVA continues with its strategy of reducing its exposure to the real-estate sector in Spain, both in the developer segment (lending to real-estate developers and real-estate assets on the balance sheet of this area) as well as in other real-estate assets. As of 30-Sep-2017, the net exposure stood at €7,828m, a fall of 23.3% since December 2016, driven primarily by wholesale transactions during the first nine months of the year.
While wholesale sales played a key role in the first half of 2017, in the third quarter BBVA took another important step in its real-estate strategy with the agreement reached with Metrovacesa Suelo y Promoción. As part of this arrangement, the Bank participated in a non-monetary share capital increase, transferring €431m worth of land for construction of homes. In addition, BBVA sold a non-performing loan portfolio. This portfolio had a gross value of around €600m
Overall, 21,041 units have been sold so far this year at a total sale price of €1,823m. This represents a significant increase on the same period last year, both in the number of units and sales price. The policies and commercial plans established for each asset type will continue in place in 2017 with the aim of accelerating sales and reducing the stock, with specific actions targeted at the product that has spent the longest time on the balance sheet.
In terms of total real-estate exposure, including outstanding loans to developers, foreclosed assets and other assets, the coverage ratio was 56% at the close of September 2017. The coverage ratio of foreclosed assets rose to 62%, a relatively high percentage given the proportion of these assets on the balance sheet.
Non-performing loans have fallen again, thanks to a low volume of net additions to NPL over the period and the previously mentioned sale of a non-performing loan portfolio. The NPL coverage ratio ended 30-Sep-2017 at 61%.
Results
This business area posted a cumulative loss in the first nine months of 2017 of €281m, compared with a loss of €315m in the same period last year. This illustrates a decline in losses together with a significant reduction in real estate exposure.
Financial statements (Million euros)
| Income statement | Jan.-Sep. 17 | ∆% | Jan.-Sep. 16 |
|---|---|---|---|
| Net interest income | 48 | 10.5 | 44 |
| Net fees and commissions | 3 | (37.8) | 5 |
| Net trading income | (0) | (98.8) | (1) |
| Other income/expenses | (69) | (9.2) | (76) |
| Gross income | (18) | (37.5) | (29) |
| Operating expenses | (84) | (7.6) | (91) |
| Personnel expenses | (47) | (4.1) | (49) |
| Other administrative expenses | (24) | 5.2 | (23) |
| Depreciation | (14) | (30.8) | (20) |
| Operating income | (103) | (14.8) | (120) |
| Impairment on financial assets (net) | (126) | 0.5 | (125) |
| Provisions (net) and other gains (losses) | (131) | (33.7) | (198) |
| Profit/(loss) before tax | (360) | (18.9) | (443) |
| Income tax | 78 | (39.4) | 129 |
| Profit/(loss) for the year | (282) | (10.6) | (315) |
| Non-controlling interests | 1 | n.s. | (0) |
| Net attributable profit | (281) | (10.9) | (315) |
| Balance sheet | 30-09-17 | ∆% | 31-12-16 |
|---|---|---|---|
| Cash, cash balances at central banks and other demand deposits | 12 | 33.5 | 9 |
| Financial assets | 1,203 | 109.3 | 575 |
| Loans and receivables | 4,886 | (17.8) | 5,946 |
| of which Loans and advances to customers | 4,886 | (17.8) | 5,946 |
| Inter-area positions | - | - | - |
| Tangible assets | 353 | (24.0) | 464 |
| Other assets | 5,129 | (23.7) | 6,719 |
| Total assets/liabilities and equity | 11,583 | (15.5) | 13,713 |
| Financial liabilities held for trading and designated at fair value through profit or loss | - | - | - |
| Deposits from central banks and credit institutions | - | - | - |
| Deposits from customers | 17 | (27.9) | 24 |
| Debt certificates | 794 | (4.7) | 834 |
| Inter-area positions | 7,595 | (20.2) | 9,520 |
| Other liabilities | 0 | n.s. | (0) |
| Economic capital allocated | 3,176 | (4.7) | 3,335 |
| Memorandum item: | |||
| Risk-weighted assets | 9,905 | (8.9) | 10,870 |