Spanish banks need more than 40bn euros

Unfinished development Spain's banks have been hit hard by the property crash

The International Monetary Fund's estimate that Spanish banks need to raise around 40bn euros (£32bn; $50bn) of additional capital as protection against potential future losses is already out of date and too low - or so the IMF concedes.

There are two and a half reasons why, when in the coming days Spain finalises how much additional capital its banks need to find, the number will turn out to be greater.

First, the IMF did not fully estimate the possible losses on loans in what bankers call "forbearance" - which is where banks have allowed borrowers in difficulty to temporarily cease payments. A separate independent assessment of Spanish banks' assets, commissioned by the government, is likely to show that the value of some of these loans is less than the IMF has assumed.

Second, there will be further costs for banks from the rebuilding and reorganisation they require to make themselves viable once more.

Third, (actually this is the second-and-a-half reason, because I am unclear about how the Spanish government will address it), the independent assessors may conclude that the banks should make greater provisions for possible losses on their loans to the Spanish government - because the price of Spanish government bonds has deteriorated since the IMF determined the haircut or discount that should apply to these bonds.

What the IMF report confirms is that the finances of the Spanish government and of the Spanish banks live and die together - in that the banks hold around two-fifths of Spanish central government debt, which is equivalent to 8% of all the banks' loans and investments. Or to put it another way, the Spanish government would have struggled to finance itself without loans from the banks and the banks would be bust if the government were to go bust.

All of which reinforces the likelihood of the Spanish government receiving a substantial bailout package from the eurozone's European Financial Stability Facility - because it cannot borrow the sums required by its banks from its banks (doh!) and right now other investors are increasingly reluctant to lend to it.

For what it's worth, about 10 days ago I said on the Ten O'Clock News that Spanish banks may need around 85bn euros of additional capital, including the 23.5bn already requested by Spain's fourth biggest bank, Bankia.

By the way, it is worth noting that the IMF concludes that Spain's two biggest banks, Santander and BBVA, do not need to raise any additional capital.

The bulk of the hole in Spanish banks is in seven former savings banks, including Bankia, that already rely on financial support from the government, and collectively represent more than a fifth of all loans in Spain.

These banks have a high share of mortgage lending and are heavily exposed to commercial property and construction lending - which is what has done for them, because Spain's housing market is weak and becoming weaker, and its commercial property sector is a basket case.

Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 139.

    The end of the depression was world war and a reshuffling of power and money. May well be the same this time around.
    ~ ~ ~
    I was always taught & recall the history & economics books show recovery was well under way some time before WWII started - for other reasons

  • rate this

    Comment number 138.

    Its also about population density - the UK is one of the most densely populated countries in the world - or England especially - 750 people per sq km if I remember rightly - the corresponding figure for Spain is 75 persons per sq km

    Its difficult for prices to fall drastically in England with those demographics - England IS almost a city

  • rate this

    Comment number 137.

    sjov @64
    "jail directors"?
    "If EZ a company"

    But it is not: rules as for states
    However 'cut', states live on
    Even in pseudo-democracy
    Responsibility with electors
    Uninformed consent, but still

    stanilic @68
    "we & them"
    Takes the two
    To go along with inequality
    Sharing blame for 'corruption'
    ... for 'perverse incentives'

  • rate this

    Comment number 136.

    135....Zero Coupon Swaps ?

    400 char limit. is dsgraceful!

  • rate this

    Comment number 135.

    Something funny is happening here. What it is isn't exactly clear.
    But it has to do with "maturity" of derivative debt, which must be written off.
    Makes sense too - because if banks aren't lending, what are they doing with all this money. I think the problem from the beginning was contagion - from across the ocean.


Comments 5 of 139



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