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Souring tourism loans could be major hot spot for Spanish banks


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Souring tourism loans could be major hot spot for Spanish banks

As coronavirus restrictions ground planes and shutter hotels, Spain — a global tourist destination — is suffering a slump in visitors, cutting off vital revenues for tourism-related small and medium-sized enterprises. And given that SMEs are the bread and butter of many Spanish banks, lenders face a rise in tourism-related nonperforming loans.

The prolonged nature of the crisis means a "normal" tourist season will be unlikely in 2021, putting further pressure on the sector, particularly on SMEs. Banks such as Banco de Sabadell SA, CaixaBank SA and Bankia SA are especially exposed in popular tourist spots such as Barcelona and the Canary and Balearic islands, Albert Banal-Estanol, an associate professor in the department of economics and business at Universitat Pompeu Fabra in Barcelona, said in an interview.

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S&P Global Market Intelligence data shows that Sabadell had the most exposure to accommodation and food services among Spanish banks, with 8.01% of loans at the end of 2019, and its exposure at default — a bank's total exposure when a borrower fails to make loan payments — to tourism, hospitality and leisure was €6.6 billion at the end of the third quarter of 2020.

Nearly 6% of CaixaBank's loans were in accommodation and food services at 2019-end and it had €9 billion in exposure at default to tourism and leisure as of Sept. 30, 2020.

Bankia's loans to accommodation and food services stood at 4.85% of total loans at 2019-end, while Banco Bilbao Vizcaya Argentaria SA's exposure was 5.01% and it had €11.25 billion in exposure at default in the leisure industry including hotels, restaurants, travel agencies and gaming.

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The country's largest bank, Banco Santander SA, which also has a large international presence, had 3.59% of total loans to accommodation and the food sector at 2019-end, and its provisions almost doubled in Spain in the nine months to September-end, largely due to SME lending. The length of the pandemic will be key because of the "significant role" tourism plays in the Spanish economy, CEO José Antonio Alvarez said in a third-quarter earnings call.

And it is not just lending that is affected by the sharp fall in tourists. CaixaBank CFO Javier Pano Riera told a third-quarter earnings call that the bank's fees were down 2.7% year over year in the nine months to September-end because its payments business was affected by a "weaker tourist season."

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Tourism accounts for 12.3% of Spain's GDP and the French national statistics office, Insee, ranked the country in second place for 2018 international tourism revenues totaling €62.5 billion, behind the U.S. and in front of France. And with the industry virtually closed down, the impact for banks could be significant.

Rising unemployment in the tourism sector could mean it would be difficult for borrowers to pay back mortgages. According to Spain's National Statistics Office, 2.62 million people, or 12.7% of the workforce, are employed in tourism, while Bank of Spain data show that 19.4% of mortgage holidays were granted to borrowers employed in accommodation and food services as of Oct. 31.

Hotel stays

Hotel stays in the country fell to virtually nothing in April. They rebounded in July to 11.5 million, but this was still a fraction of the 43.2 million overnight stays recorded a year ago, the statistics office said.

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"It's not only tourism but it's all the activities related to tourism ... that are also hugely affected by the pandemic," Banal-Estanol said. "Art, entertainment, all these are really important in Spain. It's a big part of the GDP that adds to tourism."

Tourism — or the lack of it — has a knock-on effect on other sectors. Eduardo Santander, executive director of the Brussels-based European Travel Commission, estimated that €1 of value generated by tourism results in an additional 56 cents of indirect added value on other industries.

Government support

As the coronavirus outbreak unfolded in Spain, the government responded with €100 billion in March then another €40 billion in July in state-backed loans. The government on Nov. 17 extended the loan maturities and grace periods.

At the end of July, €14.45 billion of government-backed loans had been awarded to the tourism sector, according to Spain's Ministry of Industry, Commerce and Tourism. Spain has the largest take-up of loan guarantee schemes compared to other large European economies, with 98% of loans granted to SMEs and the self-employed, the IMF said.

Banal-Estanol said he fears an uptick in bankruptcies, which in turn will lead to rising nonperforming loans, once grace periods end.

"We don't feel the pain yet," he said.

Larger exposure

NPLs related to accommodation and food services rose to 4.45% in Spain in the second quarter from 4.22% in the first quarter, according to data compiled by S&P Global Market Intelligence.

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Pablo Manzano, vice president of global financial institutions at DBRS Morningstar, said it was difficult to quantify banks' total exposure to tourism-related businesses because it can include real estate, for example through hotel developments, and transport.

"We still don't know the effects of the first wave because of all the regulatory exemptions on how [banks] need to report NPLs, because of their moratoria, [and] because of state-guaranteed loans, so it's impossible to assess the current damage on their balance sheets," he said.

However, Manzano said, the crisis is likely to have a significant impact on Spanish banks as support measures dwindle, with the impact becoming clearer by the second quarter of 2021.