Spain should lift toxic assets off banks’ balance sheets with European support, Budget Minister Cristobal Montoro said.
“A first very important policy is to clean up the banking system,” Montoro told a conference today in San Lorenzo de El Escorial, near Madrid. “We need to segregate from those balance sheets the assets that are damaged by the crisis.”
Spain’s government, which had ruled out creating a bad bank to buy soured assets, has indicated it may create such a vehicle since seeking a European bailout for its lenders last month. Banks have about 180 billion euros ($221 billion) of problematic assets linked to the real-estate industry on their books as the property slump enters its fifth year.
The mechanism for separating the assets -- whether it will force all banks to comply and whether there will be one centralized holding company -- will be set out in the agreement governing the European rescue package, Montoro said. Spain is negotiating the terms of as much as 100 billion euros of emergency loans for its banks. Finance ministers are due to discuss the accord at a meeting in Brussels today.
The European Commission has a “clear preference” for segregating problematic assets and the policy has “advantages,” Economy Minister Luis de Guindos said June 26.
De Guindos, in his second banking overhaul since the government came to power in December, told banks to transfer into separate management vehicles property they have taken onto their books in exchange for loans. Still, each bank can set up its own vehicle and the rules allow them to continue to fully own the unit, reducing pressure to put a market price on the assets.