Spain's financial crisis and property bust continue to weigh heavily on the country's banking sector, as both Caixabank and Banco Popular revealed a jump in their bad loan ratios and more provisions to cover for loan losses.
The two are almost exclusively focused on the Spanish domestic market, and lack the international diversification of groups like Banco Santander and BBVA.
Caixabank, Spain's third-largest banking group by assets, said on Friday that non-performing loans now accounted for 11.17 per cent of its total loan book, up from 9.41 per cent in March.
The bank also took a €540m charge to cover for potential losses on its portfolio of restructured loans – loans that were rolled over after the debtor was unable to pay back the money in full or on time.
Banco Popular, a medium-sized Spanish lender, said that its non-performing loan ratio increased from 13.3 per cent to 14.5 per cent, again reflecting the decision to reclassify restructured loans as non-performing.
The rise in bad loans reflects a new policy by the Bank of Spain, which earlier this year warned that domestic banks were being too optimistic in their treatment of their restructured loans. Caixabank said the central bank's stricter new approach to restructured debt had led the lender to declare loans worth almost €3.3bn as non-performing.
Investors were cheered by Caixabank's overall performance in the first half of the year, however, sending its shares up 1 per cent to €2.8 in midday trading. Net income in the six months to July rose from €166m in the same period last year to €408m, largely reflecting gains on disposals.
Net interest income, the profits generated by a bank's core lending activities, rose almost 10 per cent year on year to €1.96bn.
Banco Popular, meanwhile, saw its non-performing loan coverage ratio, measuring the amount of provisions it has set aside as a proportion of souring assets, slip from 58.9 per cent to 52.3 per cent over the quarter. The trend illustrates the challenge Spanish lenders face to maintain profitability whilst wrestling with the need to mend their balance sheets.
Late last year Popular launched a €2.5bn rights issue to bolster its capital after a Spanish government-commissioned stress test judged it to be vulnerable if the country's economy deteriorated further.
Popular reported net profit of €66m, above analyst expectations of €17m. That was helped by a rise in net interest income of 11 per cent, compared with the first quarter, to €660m.
The lender also reported extraordinary gains of €47m over the quarter as it sold off bad loans and disposed of its life insurance unit.
Banco Popular's shares rose 7.1 per cent to €3.26 at the close, as investors chose to concentrate on better than expected net interest income as opposed to rising bad loans.
