The real estate sector and credit institutions in Spain after the 2008 crisis
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Abstract
This paper aims to show the possible negative effect from granted real estate credits potential defaults on financial statements from both universal banks and savings banks. Applying accounting analysis and using data from annual financial statements, this goal is reached looking at the absolute difference between the results on banking operating activity and the levels of default risk on mortgages granted to households, on loans for mayor investments in real estate services. This research also warns about the high level of leverage allocated in the construction sector. This paper does not take into consideration the provisions collected from the Spanish financial system, but it presents a leading indicator of financial risk in order to observe that the aforementioned absolute difference is negative in both universal banks and savings banks when it is assumed not only that there are two different scenarios of net losses at 20 % and 50 % but also that non-performing loans can not be recovered. It is also found a positive result when it is assumed 50 % net losses in universal banks. An increase in the level of default risk in the real estate activity jeopardises the banking sector economic performance, and it could reduce the financial institutions profitability. Results obtained could be seen as an exercise to understand the relationship between the financial activity and the real estate sector in 2009. This study proposes a new way to estimate the impact of an economic turmoil on financial institutions, particularly on the already extinct Spanish savings banks.
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