Spain Non-Performing Loans Decline After Bad Bank Transfers

Spanish banks’ non-performing loans as a proportion of total lending dropped in December after lenders including Bankia SA transferred soured assets linked to real estate to the country’s bad bank.

The proportion fell to 10.44 percent from a record 11.38 percent in November, the Bank of Spain said on its website today. Doubtful assets declined to 167.4 billion euros ($224 billion) from 191.6 billion euros in November, the bank said.

Spain set up a bad bank, known as Sareb, under the terms of a European bailout for its banking system to absorb the soured assets of nationalized lenders. While the transfer of assets to Sareb in December brought down the bad-loan ratio after 20 straight monthly increases, a Spanish economy set to shrink for a second year in 2013 will continue to generate defaults, analysts and bankers said.

“The trend is still for further deterioration because of what is happening in the economy,” said Juan Lopez, an analyst at Espirito Santo Investment Bank in Madrid. “There is still plenty of news about companies going bust.”

Sareb received 37 billion euros of assets from four nationalized lenders in December.

The vehicle will eventually manage about 55 billion euros of assets, with two-thirds being loans linked to real estate and the rest property assets, according to its website. The discount on gross book value for the assets transferred is 49 percent for newly-built homes, 66 percent for building projects still under construction and 79 percent for land, Sareb said.

The bad-loan ratio for Spanish lenders in December 2011 was 7.84 percent.