Spanish banks report fall in profits

IMS - International Mortgage SolutionsThis week has started to see the Spanish Banks publish their results for 2011.

La Caixa, now renamed CaixaBank, and floated last year, has reported profits are down 13%.

Sabadell group profits are down 39% and Banesto has seen profits tumble by three quarters.

On the positive side they all at least still made a profit.

Most of the down turn in profits is due to the drop in income between the interest payable and interest earned and the higher provisions they have been forced to make to cover bad assets on their balance sheets.

Loans in default, as a percentage of their loan books, continue to rise each month partly driven by more defaulters and partly driven by the fact that every bank is decreasing its loan book size.

Risk departments who were on the back foot during boom times and forced to bow to commercial pressures are now very much ruling the roost. They are by nature normally cautious and, with no pressure being applied from sales, are wielding their new found power in a dictatorial and intransient manner.

There is on most occasions little common sense or commerciality being applied. Any deviations from criteria are rejected and ability to look at an application in its entirety to assess  risk properly  has all but disappeared. A well constructed challenge to an initial decision can still bear fruit but experience and a good understanding of risk managers psyche is paramount to making this happen.

Many branch staff are finding it difficult to come to terms with the new world and often still over promise direct clients both in terms of what is possible and costs. We are back to the days of Spanish banks working on the basis that if a client applies for a mortgage, no matter what is finally agreed, the client will complete even if the terms bear no resemblance to what the client was expecting to get.

Many, including Lloyds and Barclays, are focusing solely on a certain type of client by having minimum levels of income required, minimum value of property or minimum loan sizes but have pricing that a “vanilla client” would not want, or need to pay. It is difficult to see how these banks are going to square the hole on pricing against the type of borrower required.

Loans above two hundred thousand euros are becoming more difficult to find, whatever the strengths of the client’s situation. Again this makes no sense as there is no evidence that one larger quality loan is worse to have than 10 poorer quality loans, in fact for most sensible people the reverse would seem to be true.

Potential borrowers can expect the Banks to be very pedantic on paperwork requirements, to request what clients may feel is unnecessary, to have unusual and unfathomable idiosyncrasies to their risk assessment and appear on many occasion to have issues with perfectly good applications.

Matching a clients profile to the current banks available has now become one of the most important things upfront. There is no point in applying as a single applicant to a bank that will only lend to married applications. There is no point in applying to a Bank that will not lend if more than one property in the applicants country of residency is owned, if you own more than one property. There is no point in applying to a Bank if you are self employed if they will not take into account dividend income.

Once access has been ascertained the next consideration is best terms of those lenders available for that application. The rate range from worst to best is the largest it has ever been. Margins above Euribor range from 1.70% at bottom end to a massive standard rate of 3.85% at top end.  The linking of compulsory products also means all costs need to be taken into consideration. It may be better for instance for certain clients to have a higher rate and no life costs versus another client who may find it more beneficial to have life cover and a lower rate.

Any clients who want to brave the battlefield without professional assistance need to make sure the bank explains all the terms clearly and they should shop around.

International Mortgage Solutions

( p.s. Many thanks to Heather at International Mortgage Solutions for her informative updates. )


6 thoughts on “Spanish banks report fall in profits

  1. The danger with that is the lack of regulation. Without someone to keep an eye on it there could be all kinds of problems. We are all aware of “loan-shark” tactics when payments are not met – we’ve all seen news stories about extortionate rates of interest, unofficial bailiffs basically stealing property to cover costs – and this could go the same way.

    It maybe a solution for some people but I would say it is not workable without some regulations in place, for the benefit and protection of both lender and borrower.

    1. DQ

      Well, how’s it workin’ out WITH regulation now? 🙂

      I think if one used an attorney to monitor the process, it might work, and you are right, it will not be for everyone, but I have seen some very successful deals happen this way and everyone was more than thrilled. Due diligence on both parts is important. Clearly defined contract terms are important as well.

      I have also seen alot of foreclosures even when payments were made on time, and when banks said they would work with the property owners…. so keeping ones word is very important no matter if you are in a private deal or a bank regulated deal.

      I think the world is changing how they do business, and the buyers are deciding what they will put up with, and what they won’t. Boutique lenders and private lenders are becoming more widespread — people don’t want to deal with banks, their actions have become quite unpredictable… I would love to see the banks get back on track, and not put greed first.

      🙂 DQ

  2. Currently I don’t think there is any regulation of private lending.

    There is a lot of news about this in the UK at the moment as lots of cash-generators are springing up everywhere. Pay-day-loans and the like are now common on the UK high street, despite APR’s in the hundreds, and in some cases, the thousands.

    These places have popped up quickly in response to the crisis and before any real regulation has been written! It’s likely to cause problems and I think it’s a fad that will quickly disappear when the regulators get a hold of it. There are no credit checks and money can be in your bank the same day. Very dangerous if you ask me and likely to contribute heavily to another recession. Many people will borrow, many wont be able to repay, as with the current mortgage problems.

    1. DQ

      What I meant by that smart comment was, how is it working out now WITH the currently regulated banks? (I was being sarcastic 🙂 )

      Banking — whether mortgage banking or commercial banking — in it’s current “regulated” state (and I use that term verrrry loosely) is not working, so I am just trying to figure out a way to get folks into some of those empty homes — one at a time is slow, but at least one at a time won’t be homeless…

      People need to be able to live with dignity and pride — and in a safe home.

      So, my point really was, since the governments are allowing the banks to screw the people over, it’s up to individuals who have the ability and the means to help others — private loans.

      🙂 DQ

    2. DQ

      Oops, forgot one thing — in the USA, the payday loan operations are HUGE! Pawn shops and payday loans are such a racket! Those need some regulating in my opinion. They charge huge ridiculous percentage rates for the use of their funds, which makes it impossible for anyone to repay them…. so the problems just increase… it’s like getting stuck in a vicious circle … And the government in the USA knows all about this and allows it to happen so monkey see, monkey do — the UK will most likely follow suit.

      You are right though — very dangerous and just pushes the folks into an even worse situation…

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