Spanish Banks: New provisioning system, same economics

Escrito el 16 Julio 2009 por Antonio Rivela Rodríguez en Uncategorized

Last research report published by UBS summarises the new Spanish banks provisioning system as follows:

New specific provisioning framework for RE guaranteed loans

Although not confirmed by BoS yet, according to “ El Pais” the BoS will ease the

specific provisioning system. We estimate the theoretical positive impact for the

domestic banks at c40% of EPS2010e (we do not think would be applied

retroactively in 09) if we assume that the banks decide to lower provisions

regardless of halving their coverage ratios. This regulation change is designed to

allow the “Cajas” to capitalize & minimize the FROB (restructuring fund by BoS).

How was the “old” specific provision?

Formerly Spanish banks had to provide for 100% specific provisions on NPLs

among RE developers, unsecured loans to SMEs and consumer finance over the 2

Yrs after the NPL was declared (90 days loans in arrears). For mortgages to

individuals with LTV <80% the calendar was 6 Yrs to provide for 100% coverage.

… and what changes?

According to the press, now the banks will not have to make any specific provision

on NPLs with real estate collaterals (regardless it is a RE developer or an

individual) as long as the LTV stands below 70% (although only applies to already

built properties including commercial RE assets but not land or under construction

RE). We estimate that >50% of NPL formation this year would benefit from this.

Our PTs are P/BV-based. We remain underweight Spanish banks

Upward revisions of 2010 EPS lying ahead depending on how aggressive banks are

with coverage ratios. However in economic/value terms this accounting change

does not impact our NAVe, although could also boost dividends & capital ratios.


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