Spain’s non-performing assets will continue to decline

Spanish stock exchangeSpain’s non-performing assets will continue to decline and may gain downwards momentum due to the ongoing macroeconomic recovery, according to ratings agency Scope.

Scope estimates that Spanish bank’s non-performing assets stood at €215 billion as of April 2015, which is 16% below their peak of €251 billion in December 2013, although this does include assets from Spain’s so called “bad bank” Sareb.

The agency has extrapolated the rate of decline and if it continues as its current pace, non-performing assets will stand at €190 billion by the end of the year, a 15% year on year decline.

There are structural macroeconomic imbalances that have built-up in the years before the financial crisis, which may weigh on recovery in the medium term, notes Scope.

Spanish banks’ financial performance, as well as their credit risk profile, remains negatively impacted by large portfolios of non-performing assets built up largely in the past five years following a massive real estate boom-and-bust cycle. In Scope’s view the pace of reduction in non-performing assets is important as a high level of these assets would be a heavy burden to carry through the next recession.

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