Banco Popular posted losses of 137 million euros in the first quarter, compared with profits of 93.79 million a year earlier. The losses were higher than forecast, and were the result of provisions totalling 496 million euros, up 69.9% year-on-year.
The bank made these provisions to cover the increase in those related to its property business and with the aim of restructuring and strengthening its balance sheet.
At the end of March, the bank’s “CET1 phased in’ ratio was 10.02%, its ‘CET1 fully loaded’ ratio was 7.33% and its total capital ratio stood at 11.91%. So Popular’s solvency ratios are above required levels and meet the minimum total regulatory requirement for the group, across the board, of 11.375%.
Net interest margin stood at 500 million euros, down 9.4% from a year earlier, while the operating margin was 309 million euros, down 25.9% year-on-year, but at similar levels if results from financial operations are excluded.
“The gross margin (total income) once again registered a double-digit drop due to the pressure on the interest margin and the sharp decline in ROFs (-86.8%), despite the fact the market environment has favoured the generation of capital gains in fixed income operations,” Bankinter analysts said in their daily research note.
“The restructuring carried out in the bank’s commercial network has allowed for operating costs to decline by 12.6%, although that has only partially offset the drop in revenues. The lower part of the profit and loss account has been hit by the big increase in provisions.”
Despite Popular’s provisioning efforts, Bankinter’s experts believe that “the total coverage rate for improductive assets of 45.2% (vs 45.0% in 2016) and the NPLs rate (14.9% vs 14.6% in Q4’16) is well above the sector average (currently at 9.1%).”
They conclude that “the 137 million euros of net losses is due to losses from the bank’s property business (-317 million euros vs -181 million in Q1’16). That said, the banking business is also losing momentum compared to a year ago (180 million euros vs 275 million). The fully loaded CET1 ratio has fallen to 7.33% (vs 8.17% in Q4’16) and is lower than Popular’s competitors (over 10.5%). So we expect there will be a negative reaction in the share price in the short-term.”