Economy Minister Calls for Further 50 Billion Euros in Bank Provisions
January 6th, 2012
The Minister of Economy, Luis de Guindos, said that Spanish banks must make additional provisions of 50 billion euros to deal with real estate risk loans.
De Guindos explained in an interview with the Financial Times that the figure is higher than banks expected but stressed “We have a housing problem in Spain, but it is manageable. This 50 billion euros represents 4% of Spain’s GDP. This is not Ireland. It’s a completely different order of magnitude”.
These provisions should be part of the new financial sector reforms, in which De Guindos says it is essential that banks can rebuild their balance sheets without increasing the deficit.
El Mundo reported that some analysts had speculated that Mariano Rajoy’s government would create a large “bad bank” with public money, as happened in Ireland, which would absorb the bad assets of banks, resulting from the housing bubble that burst in 2007 and the economic crisis in Europe.
However, it seems that the Government does not plan to go down that path and is more inclined towards a new round of mergers and takeovers. “In most cases, banks can make provisions for themselves from their profits. It is something that can be done not in one year, but over several years,” assured the minister.
The Bank of Spain has estimated that around 176 billion euros of the total 338 billion euros of property related assets in the Spanish financial system are risk loans related to the housing and construction sector.
The banks have already covered one third of these ‘toxic’ assets with provisions. They were expected to have to spend another 20%. However, these extra 50 billion euros represents more than 28%, which will be more of a push, as they must at the same time also cope with the higher capital requirements of the European Union.
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