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.
Euro-region finance ministers expect to reach a basic agreement on the rescue at their meeting today and a final deal at another gathering on July 20, Economy Minister Luis de Guindos told reporters in Brussels today. De Guindos, who said on June 26 the European Commission had a “clear preference” for segregating problematic assets from banks’ main business, said today such a mechanism was a possibility being considered.
“What is being analyzed is the possibility of creating real estate asset management companies that would receive these damaged assets at a reasonable valuation, to clean up the sector and enable it to focus on banks’ main activity, which is to attract deposits and give credit,” he said.
De Guindos, in his second banking overhaul since the government came to power in December, told banks in May to transfer property they have taken onto their books in exchange for loans into separate management units. Still, each bank can set up its own vehicle and the rules allow them to continue to fully own the units, reducing pressure to put a market price on the assets.