Spanish banks to make extra provisions for housing sector debts

Spanish banks will need to make extra provisions to cover their real estate and construction industry bad loans, according to local press reports.

Spanish banks hold about €82.66bn in bad loans from the housing sector, according to a report in the Expansion daily newspaper, citing figures from the Bank of Spain. They could recover up to €55bn by selling real estate and land and are reported to have already made provisions to cover a large part of these assets, but more provisions are needed.

The banks hold billions of euros of failed real estate and construction industry assets and resolving this issue is widely seen as a precondition to return the banking sector to health and end a question mark over the size of potential losses.

Various solutions have been floated from setting-up a bad bank that would absorb the failed assets to selling the most troubled institutions or encouraging them to merge. Another proposal is that the banks should value their real estate assets at market prices and assume the corresponding losses. The government could then provide support for those institutions facing solvency pressures as a result.

Bank of Spain intervenes in Banco de Valencia

The Banco de España, central bank, has replaced the directors of Banco de Valencia, the troubled regional bank, at the request of its board of directors.

The Fund for the Orderly Restructuring of the Banking Sector (Frob), the special vehicle set up to help reform the banking system, has replaced the directors of the bank with its own officials, the central bank said.

The Frob will now seek to stabilise and recapitalise the bank so that it can subsequently be sold.

The Frob will subscribe up to €1bn in to the bank’s capital and grant it a credit line of €2bn to ensure it has adequate liquidity.

The central bank decided to intervene after an assessment of the financial situation at the bank which was not able to adopt appropriate measures to ensure its viability.

The central bank had recently written to the directors of Banco de Valencia calling on them to set ou and implement an urgent and conclusive solution to the bank’s problems. Banco de Valencia’s board was unable to provide a solution to ensure the future viability of the institution and it requested the replacement of its directors, the central bank said.

The Bank of Spain said depositors and creditors “can be fully assured that the resolutions adopted today will guarantee that the regional bank can continue to operate normally and that it will meet all its obligations with third parties.”

Banco de Valencia accounts for less than 1% of the Spanish banking system’s total assets.

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