Credit risk is the possibility of loss resulting from a borrower’s failure to meet its contractual obligations. Trends in credit risk are shaped by the economic and financial environment.
In the context of the health and economic crisis caused by the pandemic, Bankinter has worked hard to make credit solutions to alleviate its customers' financial situation. For yet another year, credit risk at Bankinter continued to show moderate growth. Loans and advances to customers at amortised cost grew 6.7% and eligible exposures (which include signature risks) increased 6.3%.
Asset quality – Credit risk |
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Thousands of euros |
31-12-2020 |
31-12-2019 |
Variación |
%Variación |
Eligible exposures |
71,243,941 |
67,008,172 |
4,235,769 |
6.3% |
Stage 1 (Performing loans) |
67,933,648 |
63,714,204 |
4,219,444 |
6.6% |
Stage 2 (Underperforming exposures) |
1,625,086 |
1,612,378 |
12,708 |
0.8% |
Stage 3 (Non-performing exposures) |
1,685,207 |
1,681,590 |
3,617 |
0.2% |
Credit risk allowances and provisions |
1,020,270 |
814,329 |
205,941 |
25.3% |
Stage 1 (Performing loans) |
212,511 |
155,267 |
57,244 |
36.9% |
Stage 2 (Underperforming exposures) |
69,430 |
70,563 |
-1,133 |
-1.6% |
Stage 3 (Non-performing exposures) |
738,329 |
588,499 |
149,830 |
25.5% |
Non-performing loan ratio (%) |
2.37% |
2.51% |
-0.14% |
-5.7% |
Non-performing loan coverage ratio (%) |
60.54% |
48.43% |
12.12% |
25.0% |
Foreclosed assets |
227.145 |
290.710 |
(63.564) |
-21,9% |
Provision for foreclosed assets |
110.241 |
129.231 |
-18.990 |
-14,7% |
Foreclosure coverage (%) |
48,53% |
44,45% |
4,08% |
9,2% |
Underperforming loans and non-performing exposures have remained stable (+0.8% and +0.2% respectively). The non-performing loans ratio decreased to 2.37%, down 5.7% in the financial year. This is 53% of the sector average (4.51% according to Banco de España data from December 2020).
Provisions for credit risk increased 25.3% in anticipation of the future effects of the pandemic.
The balance of foreclosed assets decreased by 21.9% in the year to 227 million euros at 31 December 2020, equal to 0.3% of total credit risk.
The portfolio's most important features by internal business segment (eligible exposures) are as follows:
Individuals. Lending to individuals increased by 1.6% in 2020. Private Banking was the most dynamic segment, while individual financing and consumer credit contracted slightly due to the effect of the health crisis. The temporary halt to mortgage activity affected the individual segment, and the reduction in demand and risk appetite also had a negative impact on consumer credit. The individual lending portfolio totalled 29,788 million euros at year-end, with an NPL ratio of 2.2%.
The residential mortgage loan book for individuals showed a loan-to-value (the ratio between the loan amount and the value of the mortgaged asset) ratio of 57% at the close of 2020, with 87% of the loans secured by the borrower's primary residence. The non-performing loan ratio was 1.9%. The average effort (the proportion of income that the customer allocates to paying mortgage loan instalments) remained extremely low (23%).
Consumer finance, operated in Spain through Bankinter Consumer Finance and in Ireland through Avantcard, grew by 1.2% to 2.621 billion euros in the year, with 3.68% credit risk. Risk-adjusted margins, and NPLs and NPL ratios remained under control and in line with typical levels for this type of business.
Corporate Banking. All segments of legal entities saw a significant increase in credit as a result of the support measures for companies approved to mitigate the effects of the health crisis. Credit risk in Corporate Banking grew by 9.2% to 17.284 billion euros — an NPL ratio of 0.65%. In this segment, where the business activities are more international and less exposed to Spain’s economic cycle, Bankinter boasts a solid competitive position based on specialisation, KYC, flexibility and quality of service.
Small- and medium-sized enterprises. The SMEs Retail Banking (small and mediumsize enterprises) segment grew by 11.62%, ending the year with a loan book of 14,734 million euros and an NPL ratio of 5.1%. The Bank uses automated decision-making models to manage this segment, along with centralised teams of highly-experienced risk analysts.
Portugal. Bankinter Portugal’s loan book contributed 6.995 billion euros of exposures to the balance sheet, an increase of 7.2% in the year, and an NPL ratio of 2.41%.
Bankinter has used internal models as a tool for supporting its decisions regarding credit risk since the 90s. These models enable the Bank to assess the credit quality or solvency of transactions and customers, providing quantitative measurements of their credit risk. These models are mainly used to support approvals, set prices, quantify the coverage for impairment or provisions, estimate regulatory capital, monitor loan books, support recovery and facilitate active management of the loan books' risk profile.
Internal rating models provide standardised classes of solvency that group together customers/transactions with comparable probability of default. They are calibrated to assess expected and unexpected losses. These metrics are essential for managing and monitoring credit risk at Bankinter.
Bankinter has rating models both for retail segments (mortgages, consumer spending, SMEs and so on) and wholesale segments, such as Corporate Banking. These statistical models are developed using customer, operational and macroeconomic information, combined in the wholesale segment with expert analysis. The models are updated and monitored on a regular basis to ensure their power of discrimination, stability and accuracy under a strict governance structure. The models and the executive risk committees are responsible for approving Bankinter's models. The risk committee also receives information periodically on the status and monitoring of these models.
The distribution of exposure at default (EAD) by internal segments or categories is shown below. 79% of the exposure with the public bodies corresponds to operations covered with an ICO guarantee under ICO-COVID and similar lines.
Additionally, the Bank is making progress in applying advanced analytics models to different credit risk management processes, such as monitoring, anticipation and recovery.
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