Spanish banks will recognize loan losses of 80 billion euros ($101 billion) to 112 billion euros by the end of 2013 as the country’s double-dip recession drives up defaults, Standard & Poor’s said.
Pressure is building on banks to make the loan-loss provisions this year for both 2012 and 2013, the ratings company said in a report. Were that to happen, “Spain’s banks would require substantial capital support from the Spanish government” or the European Union, S&P said.
Spain is five years into a property slump that has pushed the economy into recession, driving up bad loans ratios to the highest level since 1994. Doubts about the ability of the government to backstop losses at lenders following the nationalization announced last month of the Bankia group has driven up the country’s borrowing costs and led to calls from bankers, including Banco Santander SA Chairman Emilio Botin, for Spain to seek a bailout for its failed lenders.
S&P said it expects banks will be able to absorb most of the estimated loan losses with pre-provision profits of about 60 billion euros generated through 2013. Spain’s deposit-guarantee fund will probably be able to absorb 10 billion euros of losses, while banks will also be able to cover part of the shortfall by selling assets and consuming capital buffers, the ratings company said.
However, if banks need to make 2012 and 2013 provisions this year, the capital support the industry would need “could be substantial,” S&P said. In this scenario, only Santander, Banco Bilbao Vizcaya Argentaria SA and CaixaBank SA would have capital comfortably above the regulatory minimum.
“The remaining banks in the system would likely face significant challenges to remain compliant with the aforementioned minimum capital requirements,” S&P said. “They would have an increased probability of needing support from the Spanish government or the EU.”