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Banco Popular
NPA management: a strategic priority for Banco Popular
London, June 2015
Autonomous Conference
Susana Quintás, Deputy General Manager
This presentation has been prepared by Banco Popular Español solely for informational purposes. It may contain
estimates and forecasts with respect to the future development of the business and to the financial results of the
Banco Popular Group, which stem from the expectations of the Banco Popular Group and which, by their very
nature, are exposed to factors, risks and circumstances that could affect the financial results in such a way that they
might not coincide with such estimates and forecasts. These factors include, but are not restricted to: (i) changes in
interest rates, exchange rates or any other financial variables, both on the domestic as well as on the international
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event that such factors or other similar factors were to cause the financial results to differ from the estimates and
forecasts contained in this presentation, or were to bring about changes in the strategy of the Banco Popular Group,
Banco Popular does not undertake to publicly revise the content of this presentation.
The information contained in this presentation refers to the date that appears on it, and it is based on information
obtained from reliable sources. This presentation contains summarized information and may contain unaudited
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Banco Popular Group does not assume any responsibility for the losses, direct or indirect, which could derive from
the use of this document or its content. This document shall not be reproduced, distributed or published, not whole
not partially, without the previous written consent of the Bank.
2
Disclaimer
3
Agenda
1. 2. NPA management is a key strategic priority
Optimization of Aliseda’s business model
3. 4. The strategy is already bearing fruit Promising future
4
1. NPA management is a key strategic priority
Spanish
banking
sector
2008-2013 2014…
Consolidation of the industry
Coverage ratios under pressure
Several ST & Royal Decree Laws
Banks were obliged to increase
their provisions linked to RE
loans…
… and started to foreclose them
Sareb was established in 2012
The AQR has proved that coverage
ratios are sufficiently strong
Profitability drag of RE assets is
the main concern
NPL ratio has peaked in 2Q14
Cost of risk has been reduced
NPA management has become a strategic objective for the Spanish banking industry in recent times...
5
Improving the RoTE of
Popular
Reinforce the most profitable
core bank in Spain
Continue developing our recent
successful NPA strategy
• Growth on SME banking
• Leadership in margins
• Improving our efficiency
• On track for risk normalization
• NPA management is a strategic
priority for coming years
• High quality portfolio & well diversified
• Proven sales track record in 2013,
2014 & 1Q15, and upside potential for
2015
… and therefore Popular has defined a clear route to recover its profitability in which RE management will be key
6
We’ve set up a non core unit and brought specialized partners to co-manage it…
Creation of the specialized
business unit
Aliseda JV with Värde Partners & Kennedy
Wilson
Created in January 2013
Segregation of the non-core
business to house the Bank’s
RE related assets
With the aim of speeding up
the disposal process &
provide greater customer
focus to remaining activities
(i.e. SME lending)
1 2
Newly-created company founded in December 2013
Then, partly sold (51%) to Värde Partners & Kennedy
Wilson in order to accelerate the path of RE sales, reduce
recovery processes and maximize sale prices due to the
wide know-how and expertise of both partners
• Global real estate investment
and servicing company with
over €16 billion in assets
under management
• Great knowledge and wide
expertise, in 2011 KW
acquired Bank of Ireland
Real Estate Investment
Management
• An €8 billion global
alternative investment firm
• Invest in corporate debt &
risk, special situations &
structured products, as well
as opportunities in the
private sector (RE loans,
NPLs…)
7
8
… which include the management of REO & problematic loans
Non-core business perimeter
Foreclosed assets
Real Estate foreclosed
assets management
1 Developers
2 Retail mortgages&
SMEs w/collateral
3
Developers NPLs &
substandard loans
management
NPLs management
9
Financial Processes
Customer
Resources
1
2
3
4
• Acceleration of NPAs
disposals, optimizing
P&L impact
• Reduction of general,
financial, capital and risk
cost
• Optimize sales form the
developer’s balance
sheet
• Minimize the time to
market the foreclosed
assets
• Improve the quality of
collateral information
• Minimize
commercialization time
• Accelerate sale time
• Individualized strategy for largest
REOs
• Boost wholesale portfolio sales
• Foster sales of land
• Human: size & team profiles
• Technological & tools
Our NPA’s management strategy has been defined across four perspectives
“Think as a bank, manage as a RE agent”
10
2. Optimization of Aliseda’s business model
From an Investee to an industrial servicer
ALISEDA SGI
TO
OL
S
PR
OC
ES
SE
S
CO
MM
ER
CIA
LIZ
AT
ION
HH
.RR
.
MA
RK
ET
ING
11
46
71
2013 1Q15
Commercial
workforce
1
5
2014 2015
x1.5
New tools to boost
commercialization
Sales prescription
New website
Call center, etc.
Industrialization
process
Time to market
Reduction in days to
take control in the
asset
Marketing efforts
x4
% sale channels
3. The strategy is already bearing fruit
12
-2% drop in NPAs in 1Q15: high quality portfolio & well diversified
Source: March 2015 accounting data of Aliseda SGI.
Total gross NPAs non-core perimeter
€bn.
Gross REOs + Loans non-core perimeter
€bn. Data as of march 2015
13
NPAs management has become a strategic objective that combines credit Loans and REOs …
29.3 29.4
29.3
29.7 29.7
30.0 30.0
30.1
29.6
29.9 29.8 29.8
30.1 30.1
29.6
Jan Feb Mar Apr May Jun Jul AugSep Oct Nov Dec
2014 2015
10.5
1.7
2.8
Loans
SMEs with mortgage collateral
Retail mortgages
Developers
-2%
7,9
6,0
0,4 0,3
REOs
Capital instrumentsUnder constructionLandFinish products
14.6 15.0
The ratio of REOs inflows/outflows has diminished by 50% driven by the
important effort made in sales despite we have boosted entries to speed up the
recovery cycle
Source: March 2015 accounting data of Aliseda SGI
REOs entries: Friendly vs. Judicial
€m. GBV
REOs inflows/outflows
Data as of march 2015
14
… boosting REO entries during 2015 to accelerate the recovery cycle
3,4
2,8
1,9 1,9 1,7
1Q14 2Q14 3Q14 4Q14 1Q15
Inflows/Outflows
80% 83% 86% 89% 89% 93%
20% 17% 14% 11% 11% 7%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
Friendly REO conversion Judicial
YTD mar-14 YTD mar-15 Var. %
REOs entries 816 1,000 +22%
-50%
With a good quality mix of entries both in locations and quality of areas…
12%
62%
24%
2%
High Medium Low Undefined
€1,000m
Total
15
29%
71%
New houses Second-hand houses
Entries by quality area
%
Entries by asset class
%
Source: March 2015 accounting data of Aliseda SGI. McKinsey’s strategic proposal.
Stock by quality area
%
48%
19%
14%
10%
8% 2% Capitals
Tourist
Entries and sales by location
%
14%
50%
31%
5%
High Medium Low Undefined
- Entries 1Q15-
Undefined
Towns
Metropolis
Cities 35%
21% 14%
8%
17%
6% Tourist
Capitals
Cities
Metropolis
Towns
Undefined
- Sales 2014 -
We’ve opened the block sales channel with four recent transactions
Recent wholesale transactions
1Q15
Transaction #1
Social housing portfolio in Madrid
• 557 1st hand residential properties
(including garages & storerooms)
• 83 additional garages
• 20 commercial properties
• 7% discount to NBV
4Q14
Transaction #2
3 RE portfolios in Costa del Sol
(Andalusia)
• 443 units sold, of which 195 were
residential properties (the rest
garages & storerooms)
• 4% discount to NBV
Popular’s block
sales amount
Transaction #3
Residential portfolio in Andalusia
• 530 units sold, of which:
• 269 residential properties
• 224 garages
• 35 storerooms
• 2 commercial properties
Transaction #4
Land portfolio
• 14 residential lands in Castilla-
León, Navarra, Andalusia, Valencia,
Galicia, Aragon & Catalonia
9% discount to NBV Total: €333m
€159m
€174m
16
We continue posting record REO sales with a quality in line with the portfolio…
398
774
1,503
249
534
2012 2013 2014 1Q14 1Q15
Doubling the divestment of 1Q14 and almost reaching 2013 level
Source: March 2015 accounting data of Aliseda SGI Note: Asset quality location quality: High >110% country purchasing parity, Medium between 90% & 110%, Low <90%
Divestment of REOs
€m. GBV
2x
Quality of disposals vs. Stock 1Q15
€m. GBV
18% 14%
49% 50%
25% 31%
8% 5%
Sales 1Q15 Stock 1Q15
High Medium Low Other
17
NPAs distribution by region Sales by region
… and sales are also representative geographically
31%
8%
11%
12%
6%
4%
1% 1%
-
1% 1%
3%
5%
1%
9%
1%
3%
> 10% >5% & < 10% <5%
29%
11%
13%
13%
7%
5%
2% 3%
-
1% -%
2%
2% 1%
5%
2%
5%
18
Source: March 2015 accounting data of Aliseda SGI
> 10% >5% & < 10% <5%
Peers: Bankinter, Caixabank & Sabadell Source: Global market results BBVA Report. Spanish Banks Europe (6 may-15). Divestment data includes the sales of foreign subsidiaries
An historic quarter in REO (up 4 quarters in a row)
Banco Popular is being the most active in REO sales among competitors
Volume of REO quarterly divestment
GBV quarterly divestment. €M
Divestment annual growth
%. YoY
75
534
43,0 47
110,0
282
474
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
POP Bank 1 Bank 2 Bank 3
1.230 231%
100%
63%
81% 115%
30% 11%
97%
-12% -16%
233%
-21%
4% 46%
-23%
-46% -17% -28% -28%
1Q14 2Q14 3Q14 4Q14 1Q15
POP Bank 1 Bank 2 Bank 3
x7
19
4. Promising future
20
Encouraging signs in the real state market Evolution Positive trend Impact
Economy: GDP
Up 6 quarters in a row The economy shows
signals of sustained
growth
RE Sector supply: Ocuppation
Signs of improvement on the supply side
Building permits show
YoY growth
Employment in the
construction sector has
been growing in the past
months
Residential Market: Index prices
Demand dynamism starts to be supportive
Labour market recovery
Stabilization of house
price indices
Improved financial
conditions
Transactions (#thousands)
Activity recovery started in early 2014
The level of transactions
near to the first quarter of
2013
97 74 73 67 83 79 79 78 90
1Q13 2Q13 3Q 134Q 131Q 142Q 143Q 144Q 14 1Q15
30,300
118,500
Quarter growth(1T15)
Annual growth2015
21
Source: INE
Entries showcase (Mn€)
A significant improvement on REOs available for sale
Source: Aliseda SGI,’s internal data (as of 1Q 2015)
Boost
Commercial
punch:
Result
1Q2014 1Q2015
Dynamic activity
% Finish Product
Finish Product
in web’s show
case
(%)
A record
high of Finish Product
availability for sale
Result
46%
55%
1Q2014 1Q2015
353 428
050
100150200250300350400450
1Q 2014 1Q 2015
+21%
Pushing new
product to the
clients increasing
+21% since the
1Q of 2014
+49% Showcase
enlargement
Result
Number of visit requests
20,204
48,598
1Q2014 1Q2015
Web’s showcase (#)
22
Reservations of assets
56 68
76
jan-15 feb-15 mar-15
+36%
Annual budget
2x
+49%
+9 pp
19,367 28,891
15,000 assets
+50%
Operational improvement in asset entry, onboarding processes and commercialization
Source: Aliseda SGI,’s internal data (as of March 2015) (1) Service loan agreement
New tools
Activity
industrialization
SLA C01: Operations which take
less than 5 days from the
technical OK to the placement in
the market
Operations
monitoring
Sales prescription
Aliseda’s new webpage
Call center to support the branch network
Tool to increase developer’s balance sheet sales
Stock and new entries control application
Weekly follow-up SLAs
Completed billing
SLA C02: Operations which take
less than 2 days from the receipt of
the visit request to the contact date
in which the visit is scheduled
Commercial SLAs(1)
63% 99%
Apr-14 Mar-15
45%
92%
Apr-14 Dec-14
Result
Industrialization
is gradually
taking place
A strong
Service
Control from
GBP
Result
+36pp +47pp
23
Boosting sales by focusing on developing robust sales channel capabilities
24
75%
22%
3%
Real estate sector sales 2014 Sales 2014
% Branches % Commercial Agents % Internet
40%-60%
30%-50%
Current actual Potential growth
10%-30%
To reach best practice levels while maintaining
current performance of branches
25
The good results of our pilot testing will make us move to a APIs direct management model
Rationale for direct management model for APIs Industry productivity ratio1
(sales/portfolio managed -units-) Increase
incentives for
the APIs
Improve control
and visibility
•Enable direct performance
management of client-facing API
•Reduce client-leaking to other
assets offered by the API
Streamline
sales process
•Streamline sale process by
reducing intermediaries in the
sales process
•Simplify sales process by
centralizing custody in an key
management agency
Foster
competition
among APIs
•Significantly increase
prescription and custody fee
received by APIs by removing
intermediaries
• Incentive APIs to outperform
their competitors to obtain
custody rights
•Eliminate discrimination in
quality of portfolio assigned since
all APIs can sell all assets
Average peers
16%
37%
APIs direct management model
APIs indirect management model
Peers: Solvia, Anida, Altamira & Servihabitat. Source: McKinsey’s strategic proposal. Press research and corporate reports
Results of pilot Aragón Castellón
Contacts x15 x17
Visits complete +700% +650%
Increase sales +300% +700%
26
Visits Market
Sales
=
Visits Leads x
Traffic
in the website
Transformation
Prescription
Increasing potential sales through new online capabilities
The web equation