Spanish bad bank Sareb has reduced its number of "doubtful" property loans on its balance sheet to just 10.4 per cent. Spain's central bank revealed that the bank was able to cut its balance-sheet liabilities because 'group one' institutions - BFA-Bankia, Catalunya Banc, Nova Caixa Galicia Bank-Banco Gallego and Banco de Valencia - transferred €36 billion (£31.1 billion) in assets to Sareb. This was primarily in the form of foreclosed properties and non-performing loans.

"As was to be expected, the transfer of assets to Sareb, including doubtful loans relating to the real estate sector, has led to a significant decline in the total outstanding balance of doubtful loans on credit institutions' aggregate balance sheet in December," the central bank wrote in its report.

However, Sareb hasn't yet indicated how it will price distressed loans or bricks-and-mortar assets. Pricing has remained an issue because a large volume of assets are development projects or land with "questionable" long-term value. There is also fears that Spanish property will not be priced at a sum that will be attractive to investors, while other banks in the country worry they will not be able to shift their assets once Sareb begins to release assets for sale.

Santander is just one institution taking action to pre-empt moves from the bad bank and has stated it will aggressively rid itself of distressed property this year. Santander chief executive Alfredo Saenz told Reuters: "If we can get in there before the Sareb starts achieving cruising speed, so much the better." However, Santander is under no illusions about the health of the market and is prepared to rid itself of toxic property at a great loss. In fact, the bank has set aside €1 billion (£86.4 million) to cover its deficit.

For banks in the country that did not need to transfer assets to Sareb, losses are unavoidable. Distressed property is being sold at great reductions and if institutions turn to private equity firms or hedge funds they stand to lose even more money, with many typically demanding discounts of 60-80 per cent.

source: http://www.propertyshowrooms.com/spain/property/news/doubtful-property-loans-reduced-sareb_312649.html

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