Banco Popular

NPA management: a strategic priority for Banco Popular

London, June 2015

Autonomous Conference

Susana Quintás, Deputy General Manager

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2

Disclaimer

3

Agenda

1. 2. NPA management is a key strategic priority

Optimization of Aliseda’s business model

3. 4. The strategy is already bearing fruit Promising future

4

1. NPA management is a key strategic priority

Spanish

banking

sector

2008-2013 2014…

Consolidation of the industry

Coverage ratios under pressure

Several ST & Royal Decree Laws

Banks were obliged to increase

their provisions linked to RE

loans…

… and started to foreclose them

Sareb was established in 2012

The AQR has proved that coverage

ratios are sufficiently strong

Profitability drag of RE assets is

the main concern

NPL ratio has peaked in 2Q14

Cost of risk has been reduced

NPA management has become a strategic objective for the Spanish banking industry in recent times...

5

Improving the RoTE of

Popular

Reinforce the most profitable

core bank in Spain

Continue developing our recent

successful NPA strategy

• Growth on SME banking

• Leadership in margins

• Improving our efficiency

• On track for risk normalization

• NPA management is a strategic

priority for coming years

• High quality portfolio & well diversified

• Proven sales track record in 2013,

2014 & 1Q15, and upside potential for

2015

… and therefore Popular has defined a clear route to recover its profitability in which RE management will be key

6

We’ve set up a non core unit and brought specialized partners to co-manage it…

Creation of the specialized

business unit

Aliseda JV with Värde Partners & Kennedy

Wilson

Created in January 2013

Segregation of the non-core

business to house the Bank’s

RE related assets

With the aim of speeding up

the disposal process &

provide greater customer

focus to remaining activities

(i.e. SME lending)

1 2

Newly-created company founded in December 2013

Then, partly sold (51%) to Värde Partners & Kennedy

Wilson in order to accelerate the path of RE sales, reduce

recovery processes and maximize sale prices due to the

wide know-how and expertise of both partners

• Global real estate investment

and servicing company with

over €16 billion in assets

under management

• Great knowledge and wide

expertise, in 2011 KW

acquired Bank of Ireland

Real Estate Investment

Management

• An €8 billion global

alternative investment firm

• Invest in corporate debt &

risk, special situations &

structured products, as well

as opportunities in the

private sector (RE loans,

NPLs…)

7

8

… which include the management of REO & problematic loans

Non-core business perimeter

Foreclosed assets

Real Estate foreclosed

assets management

1 Developers

2 Retail mortgages&

SMEs w/collateral

3

Developers NPLs &

substandard loans

management

NPLs management

9

Financial Processes

Customer

Resources

1

2

3

4

• Acceleration of NPAs

disposals, optimizing

P&L impact

• Reduction of general,

financial, capital and risk

cost

• Optimize sales form the

developer’s balance

sheet

• Minimize the time to

market the foreclosed

assets

• Improve the quality of

collateral information

• Minimize

commercialization time

• Accelerate sale time

• Individualized strategy for largest

REOs

• Boost wholesale portfolio sales

• Foster sales of land

• Human: size & team profiles

• Technological & tools

Our NPA’s management strategy has been defined across four perspectives

“Think as a bank, manage as a RE agent”

10

2. Optimization of Aliseda’s business model

From an Investee to an industrial servicer

ALISEDA SGI

TO

OL

S

PR

OC

ES

SE

S

CO

MM

ER

CIA

LIZ

AT

ION

HH

.RR

.

MA

RK

ET

ING

11

46

71

2013 1Q15

Commercial

workforce

1

5

2014 2015

x1.5

New tools to boost

commercialization

Sales prescription

New website

Call center, etc.

Industrialization

process

Time to market

Reduction in days to

take control in the

asset

Marketing efforts

x4

% sale channels

3. The strategy is already bearing fruit

12

-2% drop in NPAs in 1Q15: high quality portfolio & well diversified

Source: March 2015 accounting data of Aliseda SGI.

Total gross NPAs non-core perimeter

€bn.

Gross REOs + Loans non-core perimeter

€bn. Data as of march 2015

13

NPAs management has become a strategic objective that combines credit Loans and REOs …

29.3 29.4

29.3

29.7 29.7

30.0 30.0

30.1

29.6

29.9 29.8 29.8

30.1 30.1

29.6

Jan Feb Mar Apr May Jun Jul AugSep Oct Nov Dec

2014 2015

10.5

1.7

2.8

Loans

SMEs with mortgage collateral

Retail mortgages

Developers

-2%

7,9

6,0

0,4 0,3

REOs

Capital instrumentsUnder constructionLandFinish products

14.6 15.0

The ratio of REOs inflows/outflows has diminished by 50% driven by the

important effort made in sales despite we have boosted entries to speed up the

recovery cycle

Source: March 2015 accounting data of Aliseda SGI

REOs entries: Friendly vs. Judicial

€m. GBV

REOs inflows/outflows

Data as of march 2015

14

… boosting REO entries during 2015 to accelerate the recovery cycle

3,4

2,8

1,9 1,9 1,7

1Q14 2Q14 3Q14 4Q14 1Q15

Inflows/Outflows

80% 83% 86% 89% 89% 93%

20% 17% 14% 11% 11% 7%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Friendly REO conversion Judicial

YTD mar-14 YTD mar-15 Var. %

REOs entries 816 1,000 +22%

-50%

With a good quality mix of entries both in locations and quality of areas…

12%

62%

24%

2%

High Medium Low Undefined

€1,000m

Total

15

29%

71%

New houses Second-hand houses

Entries by quality area

%

Entries by asset class

%

Source: March 2015 accounting data of Aliseda SGI. McKinsey’s strategic proposal.

Stock by quality area

%

48%

19%

14%

10%

8% 2% Capitals

Tourist

Entries and sales by location

%

14%

50%

31%

5%

High Medium Low Undefined

- Entries 1Q15-

Undefined

Towns

Metropolis

Cities 35%

21% 14%

8%

17%

6% Tourist

Capitals

Cities

Metropolis

Towns

Undefined

- Sales 2014 -

We’ve opened the block sales channel with four recent transactions

Recent wholesale transactions

1Q15

Transaction #1

Social housing portfolio in Madrid

• 557 1st hand residential properties

(including garages & storerooms)

• 83 additional garages

• 20 commercial properties

• 7% discount to NBV

4Q14

Transaction #2

3 RE portfolios in Costa del Sol

(Andalusia)

• 443 units sold, of which 195 were

residential properties (the rest

garages & storerooms)

• 4% discount to NBV

Popular’s block

sales amount

Transaction #3

Residential portfolio in Andalusia

• 530 units sold, of which:

• 269 residential properties

• 224 garages

• 35 storerooms

• 2 commercial properties

Transaction #4

Land portfolio

• 14 residential lands in Castilla-

León, Navarra, Andalusia, Valencia,

Galicia, Aragon & Catalonia

9% discount to NBV Total: €333m

€159m

€174m

16

We continue posting record REO sales with a quality in line with the portfolio…

398

774

1,503

249

534

2012 2013 2014 1Q14 1Q15

Doubling the divestment of 1Q14 and almost reaching 2013 level

Source: March 2015 accounting data of Aliseda SGI Note: Asset quality location quality: High >110% country purchasing parity, Medium between 90% & 110%, Low <90%

Divestment of REOs

€m. GBV

2x

Quality of disposals vs. Stock 1Q15

€m. GBV

18% 14%

49% 50%

25% 31%

8% 5%

Sales 1Q15 Stock 1Q15

High Medium Low Other

17

NPAs distribution by region Sales by region

… and sales are also representative geographically

31%

8%

11%

12%

6%

4%

1% 1%

-

1% 1%

3%

5%

1%

9%

1%

3%

> 10% >5% & < 10% <5%

29%

11%

13%

13%

7%

5%

2% 3%

-

1% -%

2%

2% 1%

5%

2%

5%

18

Source: March 2015 accounting data of Aliseda SGI

> 10% >5% & < 10% <5%

Peers: Bankinter, Caixabank & Sabadell Source: Global market results BBVA Report. Spanish Banks Europe (6 may-15). Divestment data includes the sales of foreign subsidiaries

An historic quarter in REO (up 4 quarters in a row)

Banco Popular is being the most active in REO sales among competitors

Volume of REO quarterly divestment

GBV quarterly divestment. €M

Divestment annual growth

%. YoY

75

534

43,0 47

110,0

282

474

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

POP Bank 1 Bank 2 Bank 3

1.230 231%

100%

63%

81% 115%

30% 11%

97%

-12% -16%

233%

-21%

4% 46%

-23%

-46% -17% -28% -28%

1Q14 2Q14 3Q14 4Q14 1Q15

POP Bank 1 Bank 2 Bank 3

x7

19

4. Promising future

20

Encouraging signs in the real state market Evolution Positive trend Impact

Economy: GDP

Up 6 quarters in a row The economy shows

signals of sustained

growth

RE Sector supply: Ocuppation

Signs of improvement on the supply side

Building permits show

YoY growth

Employment in the

construction sector has

been growing in the past

months

Residential Market: Index prices

Demand dynamism starts to be supportive

Labour market recovery

Stabilization of house

price indices

Improved financial

conditions

Transactions (#thousands)

Activity recovery started in early 2014

The level of transactions

near to the first quarter of

2013

97 74 73 67 83 79 79 78 90

1Q13 2Q13 3Q 134Q 131Q 142Q 143Q 144Q 14 1Q15

30,300

118,500

Quarter growth(1T15)

Annual growth2015

21

Source: INE

Entries showcase (Mn€)

A significant improvement on REOs available for sale

Source: Aliseda SGI,’s internal data (as of 1Q 2015)

Boost

Commercial

punch:

Result

1Q2014 1Q2015

Dynamic activity

% Finish Product

Finish Product

in web’s show

case

(%)

A record

high of Finish Product

availability for sale

Result

46%

55%

1Q2014 1Q2015

353 428

050

100150200250300350400450

1Q 2014 1Q 2015

+21%

Pushing new

product to the

clients increasing

+21% since the

1Q of 2014

+49% Showcase

enlargement

Result

Number of visit requests

20,204

48,598

1Q2014 1Q2015

Web’s showcase (#)

22

Reservations of assets

56 68

76

jan-15 feb-15 mar-15

+36%

Annual budget

2x

+49%

+9 pp

19,367 28,891

15,000 assets

+50%

Operational improvement in asset entry, onboarding processes and commercialization

Source: Aliseda SGI,’s internal data (as of March 2015) (1) Service loan agreement

New tools

Activity

industrialization

SLA C01: Operations which take

less than 5 days from the

technical OK to the placement in

the market

Operations

monitoring

Sales prescription

Aliseda’s new webpage

Call center to support the branch network

Tool to increase developer’s balance sheet sales

Stock and new entries control application

Weekly follow-up SLAs

Completed billing

SLA C02: Operations which take

less than 2 days from the receipt of

the visit request to the contact date

in which the visit is scheduled

Commercial SLAs(1)

63% 99%

Apr-14 Mar-15

45%

92%

Apr-14 Dec-14

Result

Industrialization

is gradually

taking place

A strong

Service

Control from

GBP

Result

+36pp +47pp

23

Boosting sales by focusing on developing robust sales channel capabilities

24

75%

22%

3%

Real estate sector sales 2014 Sales 2014

% Branches % Commercial Agents % Internet

40%-60%

30%-50%

Current actual Potential growth

10%-30%

To reach best practice levels while maintaining

current performance of branches

25

The good results of our pilot testing will make us move to a APIs direct management model

Rationale for direct management model for APIs Industry productivity ratio1

(sales/portfolio managed -units-) Increase

incentives for

the APIs

Improve control

and visibility

•Enable direct performance

management of client-facing API

•Reduce client-leaking to other

assets offered by the API

Streamline

sales process

•Streamline sale process by

reducing intermediaries in the

sales process

•Simplify sales process by

centralizing custody in an key

management agency

Foster

competition

among APIs

•Significantly increase

prescription and custody fee

received by APIs by removing

intermediaries

• Incentive APIs to outperform

their competitors to obtain

custody rights

•Eliminate discrimination in

quality of portfolio assigned since

all APIs can sell all assets

Average peers

16%

37%

APIs direct management model

APIs indirect management model

Peers: Solvia, Anida, Altamira & Servihabitat. Source: McKinsey’s strategic proposal. Press research and corporate reports

Results of pilot Aragón Castellón

Contacts x15 x17

Visits complete +700% +650%

Increase sales +300% +700%

26

Visits Market

Sales

=

Visits Leads x

Traffic

in the website

Transformation

Prescription

Increasing potential sales through new online capabilities

The web equation