Spain Bank Slashes Lending
March 18th, 2008
One of Spain’s biggest private savings banks has slashed lending to property developers which are caught in a looming housing crisis and barely able to sell land or property, its head of property lending told Reuters on Tuesday.
Jose Aguilar Martin, head of real estate at Seville-based Cajasol, said the bank was not lending to firms building holiday homes on the coast nor to property developers planning to build in areas designated as ‘rural’.
Cajasol’s tougher policy towards property firms is further evidence that Spain’s unprecedented construction boom has come to a shuddering halt and of the dire financial straits in which many indebted firms find themselves.
“Real estate on the coast (for second homes) is not being financed, or at least only under very tough conditions. There’s no foreign market, the domestic market is really down and there’s no investment market either,” Aguilar said on the sidelines of a property sector conference in Madrid.
“Promoters don’t have income because they are not selling houses, simple as that,” said Aguilar, adding it was practically impossible for indebted property developers to sell land either.
Several Spanish property developers have filed for creditor protection in the last few months, while Barcelona-based Habitat last month staved off bankruptcy at the eleventh hour by refinancing 1.6 billion euros of debt.
Around 65 percent of loans made by Cajasol are connected with the property market or mortgages. Spain’s 45 ‘caja’ savings banks, partly owned by regional governments, have assets of just under 1 trillion euros and make around half of all mortgages in the country.
Aguilar said some 90 percent of property companies borrowing from Cajasol had asked to refinance loans since the property downturn began last year, though he stressed Cajasol had not lent to a handful of well-known developers whose debt woes are mentioned almost daily in national newspapers.
Cajasol’s non-performing loans are likely to “almost double” in 2008 compared to 1.17 percent of all loans last year, he said. All Spanish banks have said their level of bad loans will rise this year as the economy slows and as individuals and companies have difficulty meeting interim payments.
Other speakers at the conference also painted a grim picture of Spain’s real estate sector, which accounts for around one fifth of Spanish GDP and jobs.
Javier Lopez-Ulloa, from infrastructure and property firm Sacyr Vallerhermoso, said Spain’s housing sector would likely build 200,000 homes this year—around a third of the home starts seen in 2006 and 2007.
However Lopez-Ulloa and noted that sales had ticked up in February: “We’re not at levels from 2006 or 2007 but there is a substantial improvement. What we don’t know right now is if it’s a temporary situation,” he told sector players.
Aguilar said it was simply too risky to lend to developers who could spend seven or eight years getting permission to build on ‘rural’ land in a market where sales had plummeted and promoters debt levels were rising fast. “A year ago we lent to almost all of them,” he said.
Across Spain, unemployment is rising faster than anywhere else in Europe. Consumer confidence is at its lowest level since Spain’s last housing crisis, in the early 1990s, according to Eurostat and Bank of Spain data.
Cajasol, Spain’s ninth-biggest caja, is also not lending to build new golf courses — hundreds of which have sprung up across the touristy southern region in recent years. Around 65 percent of Cajasol’s loan portfolio is connected to housing — either to property companies or mortgages. With a small manufacturing base and little high-tech industry, Andalucia relies on tourism, and to a lesser extent, farming.
Spain’s biggest banks have emerged relatively unscathed from the global credit crunch, but some analysts fear some of the cajas might suffer the consequences of lax lending requirements, particularly if the Spanish economy slows sharply.
Aguilar said he estimated the bank currently approves only half of all mortgage applications compared to around 90 percent a year ago and he added that the overall level of applications had dropped significantly.
Full story from The Guardian
