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Montevideo, December 8th 2022 - 13:17 UTC



Spanish banks must set aside 50bn Euros to cover ‘toxic’ real estate assets

Friday, January 6th 2012 - 07:01 UTC
Full article 14 comments
Deputy Prime Minister Soraya Saenz de Santamaria: no “bad bank” to deal with toxic assets Deputy Prime Minister Soraya Saenz de Santamaria: no “bad bank” to deal with toxic assets

Spain's Conservative government ruled out a bad bank to deal with toxic property assets, wary of adding more debt to a nation fighting to control its deficit and putting the onus on lenders to make their own provisions.

Ring-fencing property assets at a state level was never on the government's agenda, said Deputy Prime Minister Soraya Saenz de Santamaria at a press conference after the weekly cabinet meeting on Thursday.

Economy Minister Luis de Guindos said in a Financial Times interview that he expected banks to set aside up to 50 billion Euros in extra provisions to cover toxic real estate assets built up over a decade-long housing boom.

The majority of banks can achieve this by retaining earnings, and will get several years to do so, he said, a move that would restrict banks' earnings growth.

Spain is loath to bail out its banks, saddled with billions of Euros of unsold property and loans to bankrupt property developers, as this would force a sharp jump in national debt, further damaging Euro zone sentiment.

Analysts and one banking source said the move seemed to be very similar to what the last government proposed, that is putting the onus on the banks to come up with provisions to cover for toxic assets rather than pumping in state funds.

Although Spain's public debt ratio is lower than that of France or Germany, the state deficit is expected to reach 8.2% in 2011, overshooting the 6% target.

Setting up a bad bank could bump up the public debt ratio to uncomfortable levels. Bailing out the Irish banks quadrupled Ireland's debt-to-GDP ratio.

The Bank of Spain has required banks, including Santander, BBVA and its savings banks, to take a 30% provision for the 176 billion Euros of bad or substandard property assets they hold, around half of all property-related assets.

As the domestic economy has worsened and the value of assets has deteriorated, the Bank of Spain was expected to tell banks the provision needed to be about 50%. The comments by de Guindos indicate the provision will be nearer 58%.

Categories: Economy, International.

Top Comments

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  • drowe

    The Spanish government must force the banks to declare the “true” value of the property stock they are holding. Many banks are not fully completing on repossessions they are holding property in limbo thus not pulling the property onto their balance sheets and avoiding a declaring the true debt and a revaluation of the property at todays market value. Spain is littered with 1,000s of empty and uncompleted prperties and the market will take decades to recover. Spanish banks must face the fact they will need a “fire sale” to clear this stock.

    Jan 06th, 2012 - 08:08 am 0
  • Yuleno

    1# that is interesting.These private entities,after the Fanny Mae debacle,have not done anything toward rectifying their situation.And instead of criminal actions they are getting a tax free period,if I understand correctly.This while innocent youths are sacrifice to a life of indolence.Capitalist justice is it?

    Jan 06th, 2012 - 06:59 pm 0
  • Asdrúbal el Bello

    wow, 50 bn euros. British Pensions Funds meybe must pay ¡600 bn pounds!

    By the way, pictures of MercoPress on the Spanish government have lost some... humor.

    Jan 06th, 2012 - 10:58 pm 0
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