Bank of Spain Probes Leak on Santander, BBVA Mortgage Quality

The Bank of Spain said it was investigating the leak of an internal e-mail that suggested mortgage defaults at Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA should be higher than they are reporting.

“The Bank of Spain considers the adequate compliance of the duty of secrecy by its staff on any information obtained in the performance of their functions to be of extraordinary importance,” the regulator said in a note distributed to its staff today.

The central bank has started an inquiry into the publication in a national newspaper on May 26 of a confidential e-mail containing information on inspection visits at three lenders, it said.

El Mundo newspaper on May 26 published the text of an e-mail from Ramon Quintana, the Bank of Spain’s head of supervision, to Governor Luis Maria Linde on the provisional findings of inspections of the mortgage books of Santander, Spain’s biggest bank, its Banco Espanol de Credito SA unit and Banco Bilbao Vizcaya Argentaria SA, the second largest.

The e-mail published by the newspaper said the inspections of the banks had shown significant modifications to terms of loans that had already been refinanced. The level of defaults in the restructured loans was high and there were also “weaknesses” in the way they are identified and controlled, the e-mail published by El Mundo said.

Default Ratio

So-called secondary refinancings should be considered as “doubtful” unless payments on them have been kept up for at least a year, the e-mail said. If the recommended provisioning criteria is applied at the three banks, the default ratio for mortgages would rise to 7.6 percent from 2.9 percent, according to the e-mail.

A spokesman for Santander, who asked not to be named in line with its policy, declined to comment.

“BBVA cannot comment on possible ongoing inspections but it can say that its public available data adequately reflects the risk profile of its loan portfolios,” Paul Tobin, a BBVA spokesman, said in an e-mailed statement. While the bank has yet to quantify the final impact of the central bank’s new guidelines for restructured loans, it will be “clearly limited and perfectly absorbed in 2013,” he said.

The treatment of refinanced loans is a key focus for analysts as they try to assess the scope of further losses being faced by banks in the country. The Bank of Spain said May 7 that Spanish lenders had 208.2 billion euros ($269 billion) of refinanced and restructured loans at the end of last year, with 24 percent of that amount relating to mortgages.

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