Spain banks' bad loans hit new high

MADRID - The ratio of bad loans held by Spanish banks, mainly for property, hit in May the highest level since 1994, at 8.95 percent, the country's central bank said on Wednesday.

The value of loans considered "doubtful", at risk of not being repaid, reached 155.841 billion euros ($192 billion), equivalent to 8.95 percent of total loans extended by Spanish banks, figures released by the Bank of Spain showed.

The figure has been steadily rising this year, from 8.15 percent in February to 8.37 and 8.72 percent in the subsequent two months, is is likely to climb significantly higher still, according to one economist.

In late 2008, the ratio of bad loans held by banks in Spain was only 3.37 percent, but a bursting real-estate bubble revealed a core weakness that has resulted in Madrid requiring help from eurozone partners.

On June 9, eurozone countries unveiled a plan that would provide up to 100 billion euros to underpin distressed Spanish banks, which are to concentrate their risky loans in a so-called bad bank by November.

Aid for Spanish banks became a top priority after Bankia, the third largest by assets, called in May for a government bailout estimated to cost 23.5 billion euros.

Eurozone finance ministers are to determine on Friday the details of their plan to help the banks, which should lead to the unblocking of 30 billion euros by the end of the month.

That sum is to be held in reserve in case a bank urgently needs fresh cash.

On Monday, the International Monetary Fund highlighted concern about the precarious situation at Spanish banks as it forecast that Spain would remain in recession next year.

For 2012, the Spanish government expects economic activity to contract by 1.7 percent.

IHS Global Insight economist Raj Badiani forecast that "with the recession now expected to last throughout 2012 and 2013, the bad bank loan ratio is likely to remain on an upward trajectory, and could breach 10 percent by the second half of 2013."

Badiani added that "we expect Greece to exit the euro no later than the third quarter of 2013, with the Spanish economy projected to a take a considerable hit" as a result.

Falling Spanish property prices in particular "would place additional pressure on existing bank loans to the construction sector and property services," the economist noted.

They stood "at a still-substantial 391.889 billion euros, or 36.9 percent of nominal GDP (gross domestic product) in the first quarter of 2012," he said.

source: interaksyon.com

Spain mulls hiving off bank bad loans

MADRID - Spain's government said Monday it is studying a scheme to remove the massive weight of bad property-related loans crushing the banking sector.

The proposed solution would allow banks to split off their bad loans and place them into a separate agency, an Economy Ministry official told AFP, speaking on condition of anonymity.

The agency would not be a 'bad bank' -- a special vehicle used in other countries such as Ireland to help stabilize the banking system and the economy -- because the state itself would take no part, the official said.

Banks who joined the scheme would have to set aside financial provisions that recognize the sharply reduced market value of the loans, extended during a huge property bubble that imploded in 2008.

"What we are speaking about is a type of agency where several banks could come together or one could do it perhaps with an outside partner, so they can externalize their property assets," the official said.

"It is so banks can go back to doing their work as banks and someone else can take care of selling the assets.

"Conditions will be imposed and one of them will be that the banks have to make the requisite provisions for those assets. We think that the provisions should be close to the market value of the assets."

The state would not take part but foreign investors could be invited to join, the official said.

"It is an idea we are considering, one possibility," the source stressed.

Bank of Spain figures on Friday showed commercial banks held problem real estate loans worth 184 billion euros, some 60 percent of their property portfolio at the end of 2011.

Central bank figures show that the ratio of bad loans -- those at least three months in arrears -- hit an 18-year high in February of 8.15 percent of total credit extended, the highest since 1994.

Another financial source close to the matter, also speaking on condition of anonymity, said the study was "still a bit green.

"They are looking at what is the most appropriate solution to remove the property assets from the banks' balance sheets," the source said.

"What seems clear is that it will not be a 'bad bank' because there will be no public money behind it."

The conservative daily El Mundo said the Bank of Spain had appointed BlackRock's Financial Markets Advisory division and management consults Oliver Wyman as advisors on cleaning up Spanish banks' balance sheets.

BlackRock had helped to design the Irish 'bad bank,' the National Asset Management Agency which took over the banking sector's bad debt as part of a wider bailout for Ireland, the newspaper noted.

Neither BlackRock nor Oliver Wyman were immediately available to comment.

source: interaksyon.com