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raise around 40bn euros (£32bn; $50bn) of additional capital as protection against potential future losses is already out of date and too low - or so the IMF concedes.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 Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    -6

    Comment number 41.

    there is only one true way to solve this entire world crisis first one is bankruptcy but that will take a extra 30 years on top of the current 10-20 year of pain, the second involves money but i wont say how but it is possible to fix this entire problem once and for all but it mean all countries in teh world would need implement rules to prevent it ever happening again. i wont deluvge how to fix

  • rate this
    -4

    Comment number 13.

    Ok i am goin to take a bit of different view, and never mind spain. Lets take the whole debt of the world into account. From my calculations the world debt sits at a staggering 400 Trillion Trillion that includes all types of debts, so no matter what they do now it wont be enough it can never be fixed, two ways to fix it, bankrupt which is very bad or another way but ill keep that one to my chest

  • rate this
    -3

    Comment number 7.

    Europe is dead long live the Euro.

  • rate this
    -3

    Comment number 53.

    Not one polication in the world knows how to fix all this, because there idiiots an dhave been for over 200-300, the problems today all started hundreds of years ago, but acceralated in late 90s and early 00's. i predict the ecomany and market collapse for 2008 in 2001 and i predicted the double dip recessions hitting the world. this will take mroe than bailout or the euro collapse to fix it

  • rate this
    -3

    Comment number 65.

    Probably just a coincidence but, in all the countries who have imposed 'austerity measures' on their populations and, none on their financial institutions, the slide into financial oblivion continues. A lesson not learned? The Spanish and UK economies have much more in common than this. A property bubble and tourism, both fall apart with no disposable income as you are witnessing.

 

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