Spain's Cajas Have $137 Billion of Potential Bad Loans, Central Bank Says
Bank of Spain Governor Miguel Angel Fernandez Ordonez
Denis Doyle/Bloomberg
Bank of Spain Governor Miguel Angel Fernandez Ordonez.
Bank of Spain Governor Miguel Angel Fernandez Ordonez. Photographer: Denis Doyle/Bloomberg
The total exposure of Spanish savings banks to real estate and building amounts to 217 billion euros ($297 billion), of which 100 billion euros ($137 billion) is classified as “potentially problematic,” the Bank of Spain said today.
Bank of Spain Governor Miguel Angel Fernandez Ordonez, speaking in Madrid, said cajas had covered 100 percent of actual losses connected to the industry with provisions. Of the “potentially problematic” assets,” 38 percent is covered by provisions.
Spain’s government approved new capital requirements for lenders on Feb. 18 and set deadlines for them to meet the new rules or risk partial nationalization. The Bank of Spain is due to tell banks on March 10 how much additional capital they need and lenders planning initial public offerings have as long as a year to raise it.
Ordonez, who hasn’t spoken to reporters publicly since Dec. 13 when he said the state-run FROB rescue fund probably wouldn’t need to be tapped in 2011, said the decree was “absolutely necessary.” He stuck to an estimate published by the government that the additional capital required won’t exceed 20 billion euros and said the capital needs of individual banks will be published on March 10.
Some lenders will go directly to the FROB rather than trying to raise funds privately, Ordonez said. The fund, created in 2009 with 9 billion euros and the capacity to take on as much as 90 billion euros of debt, is a “backstop” and “guarantee” that all lenders will reach new capital requirements, he said.
‘Very Comfortable’
The FROB has a “very comfortable” liquidity position, Deputy Bank of Spain Governor Javier Ariztegui, who heads the fund, said today. It has 4.5 billion euros in cash and a credit line of 3 billion euros, giving it “more than enough room for maneuver,” he said.
Spain’s Socialist government announced the tighter capital requirements on Jan. 24 as part of its efforts to convince investors it can bolster its struggling savings banks without overburdening public finances.
The gap between Spanish and German borrowing costs widened to 216 basis points today, even as it remained below the euro- era high of 298 basis points reached on Nov. 30 after Ireland, struggling with the cost of bailing out its banks, sought help from the European Union.
According to the decree passed on Feb. 18 to shore up Spanish savings banks reeling from the collapse of a decade-long property boom, lenders will have until September to reach the new capital requirements.
Extension Possible
Banks that “are basically complying” with the government’s strategy and calendar and haven’t met the requirements due to procedural reasons may be able to extend the deadline by three months, Finance Minister Elena Salgado said. Lenders with plans to list shares can get an extension until the first quarter of 2012 as long as they have taken “irreversible” steps toward the sale, she said.
Ordonez said today the Bank of Spain would only grant the extensions if a “series of conditions” were met.
He also said international investors don’t always understand Spaniards’ track record of paying off their mortgages, and they mistakenly compare Spain with other countries where it is easier to walk away from mortgage debts.
Bad loans on mortgages reached 4 percent after the last banking crisis in the 1990s, and amounted to 2.5 percent in September last year, according to a presentation distributed by the bank today.
To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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