Here’s an interesting series of charts from Nomura.
They show certain stats for Spanish banks in the current crisis and the previous one — the recession of 1993, when Spain experienced a rather sharp downturn in consumer credit and GDP, coupled with the collapse of bank Banesto.
As a reminder, NPLs stands for non-performing loans. Balance sheet provisions are the stuff banks set aside for potential losses on assets. Coverage ratios are loan loss reserves divided by NPLs — so basically how much the bank has covered its bad debts — and are something which have come under increasing scrutiny among Europe’s banks in recent weeks.
What the charts show then, is that NPLs are rising along the trajectory of the previous crisis but balance sheet provisions and coverage ratios have been much lower than in the early 1990s.
Here’s what Nomura says:
Figure 12 highlights the progressive deterioration in asset quality in the current credit cycle vs. the previous one (on a monthly basis). Figure 12a measures the cumulative NPL formation (as a % of the outstanding loan book) starting in 2008 (January) and 1992 (January), while Figure 12b measures the cumulative increase in balance sheet provisions. From the beginning of 2008, the NPL ratio increased by 341bp, similar to the increase of 311bp from the beginning of 1993 through to July 1994 (not adjusted for write-offs or real estate purchases). However, during the same time, the stock of provisions has only increased by 85bp vs. 162bp during the previous crisis (see Figure 12b).
This lower trend in build of provisions highlighted in Figure 12b could be the impact of higher levels of coverage ratios (i.e. from greater generic provisions). This could also indicate that with NPLs continuing to rise there could be a step-up in the level of provisions over the coming 12 months. However, a key difference at this stage of the cycle is that Spain returned to growth in 1994 and 1995 (averaging c. 2.6% GDP growth) vs. the current expectations of a continued recession in 2010 and growth of just 1.1% in 2011.
Related links:
Moody’s still negative on Spanish banks – FT Alphaville
Good banks, bad banks – FT Alphaville
Banks’ coverage ratio capers cont. – FT Alphaville
Spanish catastrophe, otro datapoint del dia – FT Alphaville