Spanish Banks Prepare To Increase Provisions Further
News Posted On: 09 May 2012
To be crude, Spain's banks are preparing to bend over again as the government finalises a plan that will see them forced to set aside billions more euros in reserves held against property loans, allowing for the restructuring of the country's troubled lenders.
The plan, which is to be announced on Friday could include provision requirements totalling an additiojnal 30 billion Euros across the sector. The announcement is also expected to contain another injection of public money into Bankia the deeply troubled and increasingly state-owned savings bank, although the economy minister said no figures can be revealed as they could yet be changed before the plan is finalised.
The plan will no doubt bring fresh criticism of Spain's handling of the crisis, not least because it could see some weaker lenders forced to join Bankia in holding out the begging bowl for state-capital when they can't meet the new provision requirements, as many are already struggling with the last increase ordered by Mariano Rajoy in an attempt to raise 54 billion euros in February. The news has already sent Spanish bank shares tumbling, with Caixabank falling 7.9 per cent, Banco Popular down 7%. Santander and BBVA dropping 5.7% and Bankia 6.85%.
There is about 180 billion euros worth of toxic property loans on Spanish banks balance sheets. The government hopes that increasing provisions will eventually allow the banks to write down the value of the property assets suffificiently that they will start selling rapidly – big ask.
“The important thing is to get to a level of provisions where property assets become liquid, whether you can write them off, sell them or put them in a bad bank,” said Iñigo Vega, a banks analyst at CA Cheuvreux. “That will be the turning point, as you can then take the assets from the balance sheets of the banks”.
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Written by Les Calvert
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