Spain’s top three banks announced yesterday they are putting aside €6.1 billion to cover for doubtful property loans in 2012 as part of a banking sector shake-up.
From now on banks must increase provisions to up to 80 per cent of the value of problem assets
The banks – Santander, BBVA and CaixaBank – are being forced to act under a government-led reform aimed at cleaning up balance sheets weighed down with an estimated €176 billion in risky assets.
Santander, the eurozone’s biggest bank by market value, said it would make €2.3 billion in extra provisions to meet the new rules on property-related assets.
The banking titan had already set aside €3.183 billion in extraordinary provisions for dodgy property loans in the fourth quarter of 2011, ahead of the new regulations being announced.
Of that sum, some €1.812 billion was for property assets in Spain, a country hammered by the twin blows of a global financial crisis and the 2008 housing bubble collapse.
The extra €2.3 billion will come from 2012 profits, including €900 million from the sale of Banco Santander Colombia, Santander said in a statement.
The bank said it had another €2 billion cushion from excess capital within the group.
Santander calculated that the total impact of cleaning up its balance sheets in Spain, including its Banesto offshoot, was €6.1 billion.
Rival banker BBVA, the number two in Spain, said the net impact on its balance sheet of extra provisions for doubtful loans would be €1.36 billion in 2012.
BBVA said it had sufficient core capital to meet new regulations and that the sum could be entirely absorbed in 2012 thanks to the “solidity” of its business results.
Last week, the bank said it made €3.004 billion in 2011, down 34.8 per cent from the previous year after losing money in the final quarter because of the declining value of its US business.
CaixaBank, Spain’s number three, which posted a €1.053 billion net profit last year, said it would have to make provisions of €2.436 billion to cover property-related assets this year.
The bank, born July 1, 2011 from the listing of Caixa group’s retail banking activities, is now surrounded by rumours of a possible merger with rival Bankia.
The manoeuvres by the leading banks were the first concrete signs to emerge from the conservative government announcement on Friday of a major banking sector reform.
Prime Minister Mariano Rajoy’s Cabinet said it had approved a law that obliges them to set up a financial safety net totalling €50 billion.
It also moved to heal another weak point in Spain’s economy, the debts of its regional governments, approving a €10 billion euro credit line to help them pay suppliers.
Following a budget law, it was the second set of reforms by the government since it took power in December, aiming to ease the economic agony of Spain, which posted a 23 per cent jobless rate at the end of 2011.
The financial sector has undergone a major restructuring since 2008 but the government considers it still at risk.
From now on banks must increase provisions to up to 80 per cent of the value of problem assets.
For all assets combined, the new general provisions requirement will be seven per cent.