Non Core Real Estate
Highlights
- Continued positive trend in the Spanish real-estate market, although with a more moderate growth rate.
- Agreement with Cerberus that will eliminate net real-estate exposure almost entirely, with its closure estimated for the second half of 2018.
- Significant reduction in exposure and losses in the area.
Industry trends
During the first half of 2018, the real-estate sector has continued to grow, although at more moderate rates, in most of its headings:
- In the first quarter of the year, investment in housing grew by 3.5%, above the previous quarters, according to data from the National Quarterly Accounting office of the INE.
- From January to April, sales of homes in Spain totaled 182,450, a rise of 8.0% year-on-year, according to information from the General Council of Spanish Notaries (CIEN). Job creation, low financing costs, household optimism and the buoyant mortgage market have all contributed to this positive performance.
- Housing prices increased by 6.2% in year-on-year terms in the first quarter of 2018 (INE data), that is, one percentage point less than in the previous quarter. This is the first slowdown of growth in the last seven quarters.
- The cost of mortgage financing remained at relatively low levels and the interest rate applied to new operations remained practically unchanged, at around 2.2%. As a result, new loan production for house purchase grew by 21.5% over the first five months of the year.
- Finally, construction activity continued to grow, but at more moderate rates. According to the Ministry of Public Works, almost 30,600 new housing construction permits were approved for housing starts in the first four months of 2018, 22.9% more than in the same period of 2017.
Activity
BBVA is moving forward with the process of closing the sale announced in the fourth quarter of 2017. Under this deal, most of BBVA's real-estate business in Spain will be transferred to a company, 80% of whose shares will then be sold to Cerberus in the second half of 2018. Thus, during this transitional period, BBVA continues to manage real-estate assets subject to the agreement according to normal business and control procedures.
During the first half of 2018, outstanding performing loans to developers for an amount exceeding €200m were transferred from Non Core Real Estate to Banking Activity in Spain. Thus, as of 30-June-2018, the net real-estate exposure of €5,855m was down by 8.8% from December 2017 and 4.4% over the quarter.
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 €2.3Bn (June 2018) mainly related performing loans to developers transferred to the Banking Activity in Spain area.
- (2) Other real-estate assets not originated from foreclosures.
Coverage of real-estate exposure (Million euros as of 30-06-2018)
| Gross Value | Provisions | Net exposure | % Coverage | |
|---|---|---|---|---|
| Real-estate developer loans (1) | 2,489 | 1,411 | 1,078 | 57 |
| Performing | 278 | 85 | 193 | 31 |
| Finished properties | 194 | 64 | 130 | 33 |
| Construction in progress | 40 | 5 | 34 | 13 |
| Land | 40 | 15 | 25 | 38 |
| Without collateral and other | 4 | 1 | 3 | 22 |
| NPL | 2,211 | 1,326 | 885 | 60 |
| Finished properties | 1,001 | 458 | 543 | 46 |
| Construction in progress | 107 | 56 | 51 | 52 |
| Land | 935 | 675 | 260 | 72 |
| Without collateral and other | 169 | 138 | 31 | 81 |
| Foreclosed assets | 11,486 | 7,007 | 4,479 | 61 |
| Finished properties | 7,066 | 3,632 | 3,434 | 51 |
| Construction in progress | 506 | 340 | 166 | 67 |
| Land | 3,914 | 3,035 | 879 | 78 |
| Other real-estate assets (2) | 944 | 646 | 298 | 68 |
| Real-estate exposure | 14,919 | 9,065 | 5,855 | 61 |
- (1) Compared to Bank of Spain's Transparency scope (Circular 5/2011 dated November 30), real-estate developer loans do not include €2.3 Bn (June 2018) mainly related performing loans to developers transferred to the Banking activity in Spain area.
- (2) Other real-estate assets not originated from foreclosures.
Total real-estate exposure, including loans to developers, foreclosures and other assets, had a coverage ratio of 61% at the close of June 2018. The coverage ratio of foreclosed assets stood at 61%.
Non-performing loan balances fell again, thanks to a decline of new additions to NPL over the quarter. The NPL coverage ratio closed at 64%
In addition, BBVA's stake in Metrovacesa (20.85% from the IPO in the first quarter of 2018) is now registered in the Corporate Center thus reducing the balance sheet of the Non Core Real Estate area.
Results
This business area posted a cumulative loss of €36m, which compares with a loss of €186m in the same period the previous year.
Financial statements (Million euros)
| IFRS 9 | IAS 39 | |||||
|---|---|---|---|---|---|---|
| Income statement | 1H18 | ∆% | 1H17 | |||
| Net interest income | 20 | (37.7) | 31 | |||
| Net fees and commissions | 1 | (67.6) | 2 | |||
| Net trading income | 1 | n.s. | 0 | |||
| Other operating income and expenses | (40) | 0.2 | (40) | |||
| Gross income | (19) | 200.8 | (6) | |||
| Operating expenses | (39) | (20.1) | (49) | |||
| Personnel expenses | (25) | (0.7) | (25) | |||
| Other administrative expenses | (13) | (9.3) | (15) | |||
| Depreciation | (1) | (86.1) | (10) | |||
| Operating income | (58) | 4.6 | (56) | |||
| Impairment on financial assets not measured at fair value through profit or loss | (39) | (56.5) | (89) | |||
| Provisions or reversal of provisions and other results | 56 | n.s. | (88) | |||
| Profit/(loss) before tax | (41) | (82.3) | (233) | |||
| Income tax | 6 | (88.0) | 47 | |||
| Profit/(loss) for the year | (36) | (80.9) | (186) | |||
| Non-controlling interests | (0) | n.s. | 1 | |||
| Net attributable profit | (36) | (80.8) | (186) | |||
| IFRS 9 | IAS 39 | |||||
|---|---|---|---|---|---|---|
| Balance sheet | 30-06-18 | ∆% | 31-12-17 | |||
| Cash, cash balances at central banks and other demand deposits | 9 | (24.1) | 12 | |||
| Financial assets designated at fair value | 1,295 | n.s. | 9 | |||
| of which loans and advances | 1,305 | n.s. | - | |||
| Financial assets at amortized cost | 1,149 | (67.4) | 3,521 | |||
| of which loans and advances | 1,139 | (67.6) | 3,521 | |||
| Inter-area positions | - | - | - | |||
| Tangible assets | 6 | n.s. | 0 | |||
| Other assets | 5,582 | (9.5) | 6,172 | |||
| Total assets/liabilities and equity | 8,041 | (17.2) | 9,714 | |||
| Financial liabilities held for trading and designated at fair value through profit or loss | - | - | - | |||
| Deposits from central banks and credit institutions | 96 | n.s. | 0 | |||
| Deposits from customers | 42 | 228.6 | 13 | |||
| Debt certificates | 501 | (36.2) | 785 | |||
| Inter-area positions | 5,195 | (10.0) | 5,775 | |||
| Other liabilities | 203 | n.s. | - | |||
| Economic capital allocated | 2,004 | (36.2) | 3,141 | |||
| Memorandum item: | ||||||
| Risk-weighted assets | 7,547 | (22.1) | 9,692 | |||