IMF: High Level of Bad Debt in Spain
October 13th, 2009
The institution, which released the first part of its report on global financial stability, also stressed that Spain has practiced a system of “dynamic” provisions that has enabled banks to build up “large stocks”
The IMF forecasts that Spain will be one of the European economies that recorded a higher rate of bad loans above the European average along with France and Italy, because these countries have a high rate of loans on total assets.
As far as estimates of losses for banks and financial institutions are concerned, their financial losses for the period 2007/10 could be around 412 million euros to 2.3 billion euros, but warned that risks to global financial stability “remains high”.
The institution, which released the first part of its report on global financial stability, also stressed that Spain has practiced a system of “dynamic” provisions that has enabled banks to build up “large stocks” during the pre-crisis period, with what constitutes an exception to the general tone of the system that has low coverage of provisions and this has become evident in that “bad loans are increasing faster than credit reserves.
The IMF reiterated, however, that one of the risks weighing on the global economy is the continued weak Spanish property market, citing Spain, along with Ireland and Britain, as one of the markets with higher pressure, which have suffered significant price declines.
The institution also had a few words about the Spanish government efforts to alleviate the financial crisis and stressed that the fund created for the restructuring of banks can provide a barrier against “systemic risk” and that the newly established Banking Ordinance Restructuring Fund (Frob) could also promote a process of consolidation among banks. “Some mergers are on the way,” it said.
The institution recognizes that the market situation has improved due to “unprecedented political action” and acknowledges the existence of signs of recovery, but states that there are still many challenges.
The document notes that while banks have significantly improved its capital position and their prospects, they have not yet managed to regain their income and offset the depreciation of assets. “The banks have enough capital to survive, but remain under the pressure of leverage,” says the institution.
“Revenue will be lower in the post-crisis environment, so we need stronger action to boost banks’ capital and earnings capacity to support the loans,” openly showing the IMF’s concern about the credit market.
Story from Barcelona Reporter
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