Spanish banks face extra haircut of EUR 50b - report

Spanish banks need to set aside further provisions totalling some EUR 50 bn on property assets hit by the collapse of the housing bubble and the subsequent European economic crisis, according to economy minister Luis de Guindos. In an article in The Financial Times, De Guindos said it was vital that banks clean up their balance sheets without imposing a burden on the government.

According to figures from the Bank of Spain, just over half - or EUR 176 bn of the EUR 338 bn on property-related assets in the Spanish financial system - are bad loans, substandard loans or repossessed properties and land. The banks have reportedly already set aside provisions for a third of these bad assets. An extra EUR 50 bn would amount to more than 28%, bringing the total above 60%. Previously analysts were expecting the government and the Bank of Spain to recommend an additional 20% in provisions.

Spain currently has no plans to set up a state-funded 'bad bank' along the lines of Ireland's Nama. Edged along by strong Spanish banks such as Santander and BBVA, the government is calling on the banks to solve their own problems, for example via the path of consolidation with weaker lenders being absorbed by their stronger rivals.