MADRID: Spain’s bill to bail out its banks may yet rise, some bankers and analysts fear, as a worsening economy hampers the government’s early attempts to sell off nationalised lenders and threatens the “bad bank” housing their rotten property deals.
Spanish banks say the worst is behind them after steep losses last year and they are now recovering — a view broadly shared by authorities such as the European Commission, backer of a ¤41bn ($54bn) rescue of ailing lenders.
But while Madrid is on schedule with demanded industry reforms and banks are better protected against losses from a sunken real estate market, a growing number of bankers argue in private that more state funds may still be needed to help sell rescued lenders and keep “bad bank” Sareb ticking over.
Sareb was used to clean the balance sheets of state-rescued banks by taking on ¤50.7bn worth of foreclosed properties and troubled loans to real estate developers.
The assets are matched by ¤50.7bn in senior debt and backed by ¤4.8bn in capital, more than half of which was contributed by Spain’s healthy lenders to reduce the burden on state books.
The eight percent capital cushion may however be too thin to withstand losses without a top-up, which could be hard to source from the private sector, said several senior Spanish bankers and investment bankers who have worked with the government.
“It was a big mistake. The government is going to have to take over the entire vehicle sooner or later,” said a Spanish banking executive, on condition of anonymity, echoing a view from three other senior bankers.
Spain took ¤41bn of a ¤100bn European credit line to bail out its banks last year. The bill added the equivalent of 3.5 percent of gross domestic product to a deficit that was already higher than allowed under EU rules.
The bailout came after several failed government efforts to clean up the financial sector, crippled by more than ¤300bn in bad loans after a housing bubble burst in 2008.
If the liabilities of the bad bank, known by its Spanish-language acronym Sareb, were to be put on the state’s balance sheet, it could add up to another five percentage points of GDP to the country’s debt, pushing it to more than 100 percent of annual output. Spain’s economy ministry declined to comment.
The real estate parked with Sareb was already written down by an average of 63.1 percent and the loans by 45.6 when the assets were transferred to the bad bank, but four bankers argued that further losses could still deplete its capital.
Of its loans, only 22 percent are considered “normal”; 34 percent are rated “substandard” and 45 percent “doubtful”.
Reuters
