Spanish Banks: CRE Exposures Lower than European Peers

The commentary analyses Spanish banks’ Commercial Real Estate (CRE) exposures. Summary highlights from the commentary include:

• DBRS Morningstar considers that the Spanish economy and Spanish banks have materially reduced their exposure to CRE after the global financial crisis, and current levels are below most European countries.

• DBRS Morningstar estimates that the CRE exposure for the largest Spanish banks is around 6% of aggregated loans to customers; this is significantly lower than for European banks, which is around 12% of their loan book.

• For the 10 largest Spanish banks, even the banks most exposed to CRE have levels below European averages. However, on a more negative note, Spanish CRE exposures are somewhat riskier than those of other European countries, with NPL ratios above European peers.

• Despite the low CRE exposures of Spanish banks, DBRS Morningstar is monitoring these exposures closely given the potential long-term implications of the pandemic for the CRE sector, the conflict in Ukraine, as well as the inflationary pressures and the impact of higher interest rates which could stress borrowers and consequently affect banks’ credit quality.

• In addition, we continue to work with the banks under our scope to better understand their CRE exposures, given that the level of disclosure at the moment remains generally limited in Europe.

“DBRS Morningstar considers that Spanish banks’ CRE exposures are not a source of concern. The size of these exposures is in general low and has decreased materially since the financial crisis. Nevertheless, we continue to monitor these exposures given the current uncertain economic environment and the potential long-term implications of the pandemic for the CRE sector” said Pablo Manzano, Vice President from the DBRS Morningstar Global Financial team.