Spanish Banks Refinanced, Restructured $272.4 Billion in Loans

Spanish banks had 208.2 billion euros ($272.4 billion) of refinanced or restructured loans at the end of last year, a figure that analysts said could translate into further losses.

Twenty-four percent, or about 51 billion euros, of that relates to mortgages, 36 percent to non-real estate companies and 33 percent to property and construction, the Bank of Spain said in its financial stability report published today. The balance was in loans to households and government.

An economic slump in its sixth year is generating mounting defaults for Spanish lenders that in some cases refinanced or restructured more loans to avoid booking losses. The central bank said on April 30 it told lenders to review their refinanced portfolios “without delay” to avoid differing interpretations of how to classify loans.

“In theory, there’s nothing necessarily wrong with refinancing,” said Daragh Quinn, a banks analyst at Nomura International in Madrid. “What matters is the quality of the refinancing and what is the level of re-default say 12 months down the line.”

The refinanced or restructured loans amount to about 14 percent of credit in Spain, the regulator said. Of the 208.2 billion euros, 42 percent are classed as normal by the banks, 37 percent as “doubtful” and 21 percent as “substandard,” or having some risk of turning bad.

“A number like this almost raises more questions than it answers in an economic situation like Spain’s,” said Nick Anderson, an analyst at Berenberg Bank in London. “It’s a big number, and I don’t think it’s going to let people sleep easier at night about the health of the banking system.”

The Bank of Spain report said loans would probably continue to rise. Even so, the situation is different than in 2012 because of the loan-loss charges taken by banks and transfers of soured assets to a so-called bad bank, the regulator said.

Before it's here, it's on the Bloomberg Terminal.