MADRID: Spanish banks are considering ways to boost their capital amid fears the eurozone’s imminent review of their balance sheets will force them to set aside even more cash for potential losses on restructured loans, banking sources in Madrid said.
The country’s banks last year made steep provisions for average losses of up to 60 percent on property lending where payment problems have already meant they are classed as bad loans. They may now face scrutiny over the coverage levels for defaults in other parts of their books, the sources said.
In particular, Spanish banks’ provisions to cover refinanced loans are likely to be examined, after the Bank of Spain earlier this year told lenders to treat more of the ¤208bn ($281bn) of such deals as having gone bad again.
This was to address the risk that banks were rolling over or restructuring debts to struggling companies to conceal problems.
According to a Reuters analysis of 15 Spanish banks’ results for the first six months of 2013, coverage levels for refinanced debts average out at 18.8 percent. Those of the six biggest banks range from 17 to 24 percent, the data show.
“It’s hard to establish whether the provisions reported by banks so far this year are sufficient,” said one Spanish banking source familiar with recent discussions between lenders and European authorities. “But everything points to the fact that international authorities will ask for higher coverage levels.”
Most banks needing extra capital would be able to raise it through selling assets, cutting dividends or issuing bonds or even shares to investors, although some small state-controlled banks are unlikely to be able to turn to the market.
But setting aside provisions also risks sapping cash that could be used to lend to the economy, only just emerging from a deep recession that has left many small firms short of credit.
Spanish banks, crippled by a 2008 real estate market crash, are only just recovering from a deep crisis, after the weakest were rescued with 41 billion euros in European aid last year.
Banks across the euro zone face an asset quality review (AQR) early next year before the European Central Bank takes over as supervisor. The AQR will focus on potential problem areas like real estate, small business lending and shipping. “The ECB has not yet set the parameters of its comprehensive assessment and will not comment on speculation or potential scenarios,” a spokeswoman said. “Corporate loans will be subject to asset quality reviews across major euro area banks.”
Several senior Spanish bank executives said privately that they believe they may fare better than rivals elsewhere, having undergone their own national health check last year. An examination of Spanish banking books, by the same consultancy now advising the ECB, Oliver Wyman, revealed a 60 billion-euro capital shortfall now filled by the banks and the state.
Cyprus’s banks were also tested last year, and lenders in Slovenia, Ireland and Greece will undergo tests ahead of the European exercise.
Reuters
