Ramzi blog

Spanish banks display risky appetite for property

MADRID (AFP) – They are officially banks but they have become Spain's main real estate agents, according to data from the country's banking sector which reveals the extent of their risky property assets.

The Bank of Spain had asked all 17 of the country's fragile regional savings banks, which account for about half of all lenders, to supply it with details of their exposure to the collapsed real estate market.

Unsurprisingly, the savings banks held far more risky assets than the main banks, based on a calculation of the figures last week by AFP.

The nation's seven main banks held 45 billion euros ($61 billion) in risky assets and the 15 of the savings banks that have so far published their figures had around double that, or 90 billion euros.

The difference is due to the huge amount of mortgage loans -- some 164.9 billion euros worth -- that the savings banks handed out during the property bubble, whereas the main banks only issued some 77.5 billion euros.

The savings banks are at the heart of market fears that Spain could need a bailout like the ones granted Ireland and Greece last year.

If the savings banks are unable to cope with losses from their exposure to the collapsed property sector, investors fear they will need massive government help.

But analysts noted that the total declared amount of risky assets, 135 billion euros, is much less than the Bank of Spain's estimate at the end of June, which put figure at at 180.6 billion euros.

"The numbers that emerged were generally below those of market estimates," said Juan Jose Fernandez-Figari, an analyst with Spanish brokerage firm Link Securities.

"The numbers that the market could cope with, in the worst case scenario, were much higher than what we're hearing about" now, said Jose Luis Martinez Campuzano, a strategist at Citi. And "the market response is very positive."

Since the first figures began appearing earlier this year, the Madrid stock exchange has gained almost 10 percent.

Of the 90 billion euros in risky property assets held by the savings banks, 29.4 billion euros are non-performing loans, or those that may not be repaid, and 27.5 billion euros of "sub-standard" loans at risk of default. The bad loan rate even reached as high as 45% at the Cajasur BBK savings bank.

The savings banks also have 33.1 billion euros of real estate assets from seizures, the value of which approximate because they have depreciated since the bubble burst on the country's property market in 2008.