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