Spanish Banks Could Need Up to $76 Billion More: IIF

Spanish banking stocks saw some relief early on Tuesday after heavy continued losses on Monday on concern about the banks' property losses.


Late on Monday, the Institute of International Finance(IIF) warned that under a worst-case scenario, Spain´s bank losses could hit 260 billion euros ($331.7 billion), with the majority of the losses stemming from commercial real estate loans.

In its report, the IIF highlighted that Spanish house prices have further to fall, since they haven´t declined as much as in Ireland and in the U.S. The unemployment rate of 24 percent, which is the euro zone´s highest, only adds to an acceleration of loan defaults, the IIF says.

Given that Spanish banks´provisions for loan losses are only estimated at around 190 billion euros, the shortfall in provisions could be up 50—60 billion euros ($63.7 billion—$76.5 billion), requiring government support for the smaller institutions which don´t have sufficient own resources.

The IIF says: ”The three largest banks should meet any shortfalls from own resources, thus residual capital requirements in an adverse scenario may be limited to 50—60 billion euros, around 5 percent of GDP.”

Data last week showed that bad debts have risen to their highest level in 18 years. In March they rose to 148 billion euros or 8.37 percent of all outstanding loans from 112 billion euros a year ago.

On Monday, Fitch said the spike in non-performing loan (NPL) data was mainly due to the the reclassification of Spanish bank loans as non-performing within the weaker cajas following state intervention.

Fitch wrote: “In total, banks that received some form of state aid accounted for nearly half of the increase in NPLs.”

Meanwhile, Fitch warns that there could be another spike in NPL data after the independent valuation of Spanish banks' real estate portfolios by Roland Berger and Oliver Wyman, which is expected later this year.

On Wednesday, Spanish Economy Minister de Guindos will be testifying in front of parliament about the part-nationalization of Spain´s 4th biggest lender Bankia 2 weeks ago.

According to the online edition of Spanish newspaper ABC, Bankia´s new management will be requesting a 10 billion euro capital injection from the Spanish state backed bailout fund FROB.

This request is expected to be made in the coming days, as investors are anxiously waiting for Bankia´s management to unveil a detailed restructuring plan for the bank. While it would be seen as a disgrace to see Bankia be wound down, many Spaniards feel reluctant to have the government inject more taxpayers´money into the troubled lender.