Thread by @jeuasommenulle

I wanted to wait for a few Spanish banks to report b4 sharing something intriguing. By now, you all know that the name of the game in EU banking is that there are simply no new NPLs because everything is deferred (government schemes, payment holidays). But is that always true?

And we all want to know what’s going to happen when reality kicks in. Interestingly, there’s one Spanish bank which apparently decided to stop pretending. If you take a casual look at it, you won’t see anything, because their NPL ratio hasn’t moved much - it's even going down

But that’ only because they did a big sale. The gross NPL entries are far more interesting - those are the real new default/NPL. And we can the first big jump since Covid.

That's a +125% rise over the past 6 quarters average.

Digging in the reports, it’s rather easy to see where this comes from: the construction sector has been hit hard.

But what we're seeing is not necessarily companies becoming bankrupt: it’s the bank choosing to class them as unlikely to pay, a category of NPL. The Stage 3 share in sector specific payment holidays is 16% ! That is way more than other banks.

So is that bank too cautious? Or is the book horrible? Or did they just decide to come clean?

I don’t know for sure, but here’s a clue: this quarter they sent a big thank you card to the ECB and sold a big chunk of Spanish govies to book a 600m profit.

As the saying goes: in terms of loan losses, book what you can afford, not what you should book. It appears that when you can afford more, you book more!

(Btw the bank is Sabadell)