Comes courtesy of UBS banking analyst Alastair Ryan.
He notes that novations – loans whose terms have been changed without the borrower or lender changing — now look like this:
As the chart should suggest — an increase in novations hints at stress in the mortgage market. These are, after all, borrowers basically renegotiating their mortgages.
As Ryan notes, however, with an average Spanish mortgage of €135,000, the above number suggests that around €5.6bn in mortgages are now being internally restructured or otherwise amended by Spanish banks — per month.
Crucially, these would not show up as non-performing loans in banks’ reports.
By way of contrast, the total non-performing loans over the last 12 months amounted to about €85bn, Ryan says, while mortgage novations would have been close to €50bn.
To summarise, Ryan says:
Net, net we believe the reported NPLs in the system are likely only half of the level that would be reported under different accounting standards which looked at criticised exposures more holistically.
Talk about banking (in)novation.
Related links:
Are Spanish banks hiding their losses? - FT Alphaville
Surprise! Spanish banks are not hiding their losses! - FT Alphaville