Spain’s Cajas Have $137 Billion in Potentially Bad Loans

In news from Spain, total exposure of Spanish savings banks to real estate and building now amounts to 217 billion euros, and of that 100 billion euros are seen as problematic, the Bank of Spain reported yesterday.

Miguel Angel Fernandez Ordonez (below), Governor of the Bank of Spain, suggested the 100 billion euros of the 217 billion – “did not endanger the Spanish financial sector as a whole.” Speaking in Madrid, he said cajas had covered 100 percent of actual losses connected to the industry with provisions. Menwhile, Spain’s government approved new capital requirements for lenders on Feb. 18 and set deadlines for them to meet the new rules or risk partial nationalization.

Spain banks

Spain banks in trouble despite Miguel Angel Fernandez Ordonez positive tone

At a news conference, Mr. Fernandez Ordonez used the phrase “essential and necessary” to avoid a collapse in Spanish banks’ access to external financing, when describing the new rules on capital requirements. A collapse would in turn cause a much more severe domestic credit crunch. The next important date is March 10, when the Bank of Spain is due to tell banks how much additional capital they need and lenders planning initial public offering could have as long as a year to raise it.

Finance minister, Elena Salgado, was not so optimistic when he suggested that any forced state rescue of collapsing cajas would be no more than 20 billion euros. Mr. Fernandez Ordonez said it would be “clearly” less than that amount. Such a rescue would be led by a state-run restructuring fund. Said fund was set up in 2009 and has to date disbursed almost 12 billion euros to help ailing cajas. 7.5 billion euros are still available to the fund to inject in cajas, of which 3 billion euros are in the form of credit lines.

Bank of Spain

The Bank of Spain

The cajas have taken part in a consolidation round that has cut their number to 17 from 45. The consolidation took place due to pressure from the government over the last year to cut costs and help bolster the weakest institutions. The recent overhaul of the caja sector compared rather favorably with banking overhauls in other countries, said Mr. Fernandez Ordonez. “We are proud of the important efforts that the entities have undertaken. That hasn’t been the case in all countries.”