Spain's Cajas May Take Biggest Hit From Provisioning Changes
May 27 2010 - 5:42AM
Dow Jones News
Spanish savings banks, already struggling with a deep economic
downturn, will be the hardest hit from tighter rules governing the
way the country's banks set aside cash against bad loans, a banker
and several analysts say.
The Bank of Spain on Wednesday outlined a proposal that includes
a faster recognition of provisions for past due loans, and bigger
provisions on real-estate assets banks acquire or foreclose on.
The rule change follows mounting concern that banks aren't
recognizing the true scale of their losses from exposure to Spain's
troubled real-estate sector.
A Spanish banker, who declined to be named, said the rule change
would be hardest for the country's savings banks, known as cajas,
and smaller banks.
Analysts welcomed the move, saying it may reduce uncertainties
about the health of the Spanish banking sector and force the
troubled savings banks to seek merger partners quickly.
A spokesman for the Spanish savings bank association CECA said
it is studying the impact. Spain's AEB banking association, which
represents listed banks, wasn't immediately available to
comment.
"For the Bank of Spain and the banking sector it's an exercise
of transparency with respect to the exposure to the real-estate
sector, which is what international investors were asking for,"
said Banesto Bolsa analyst Ignacio Soto Palacios.
"We also believe that it adds to the pressure on the savings
banks in the midst of a restructuring process, since they will be
the most affected by these measures," he said.
The proposal comes just days after the Bank of Spain shocked
financial markets by seizing ailing regional savings bank CajaSur,
a relatively small lender based in Southern Spain. The intervention
has since weighed on Spanish equities, bond prices and the
euro.
Investors are worried about potential fallout from the sector
which is reeling from the collapse of the housing market. The cajas
control around half of Spain's banking business and many of them
were more aggressive lenders to the real-estate sector than their
listed rivals.
The listed banks were lower early Thursday. At 0903 GMT, Banco
Bilbao Vizcaya Argentaria SA (BBVA) was down 0.5%, while Banco
Santander SA (STD) shed 1.5%. The smaller banks were also lower.
The weakness in the banking sector pulled the IBEX-35 down
0.3%.
The proposal calls for banks to set aside provisions covering
the full amount of a souring loan within a year. Banks currently
have between two and six years.
On foreclosures or when banks swap loans for real-estate assets,
lenders will have to provision 10% of the acquisition value right
away, another 10% after one year, and another 10% if they still
hold the asset on their books for more than two years.
Banks' real-estate holdings are growing fast as they seize homes
from owners who default on their mortgages, and as they agree
asset-for-debt swaps with struggling homebuilders following the
collapse of Spain's decade-long housing boom.
The rule changes did include at least one positive element for
banks. The new provisioning rules incorporate the value of
real-estate collateral, applying a haircut of between 20% for a
home that is the primary residence of the debtor, to 50% of a loan
for undeveloped land. Current rules don't make a distinction
between collateralized and uncollateralized loans, meaning banks
are obliged to make 100% provisions on a bad loan regardless of the
value of the collateral.
-By Christopher Bjork, Dow Jones Newswires, +34 91 395 81 23,
christopher.bjork@dowjones.com
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