Spanish banks will need to reserve extraordinary provisions of up to 10.000 million Euros in order to cover doubtful loans, according to the last calculation of the Bank of Spain.
In view of the last figures, the financial institutions refinanced more than 200.000 million Euros in credits prior to their maturity date, partly because the borrowers could not face the payment of the whole debt in the established deadlines.
The calculation of 100.000 million Euros is the first official estimate made of the possible impact of the new requirements of the Bank of Spain in reference to the refinanced loans.
The Bank of Spain believes that the risks linked to this practice, known as “to extend and to pretend”, have not been covered and this is why the institution is putting pressure on all banks so that they reclassify their refinanced loans before the end of September, so as to comply with the new regulation, stricter than the previous one.
According to the new rules, banks will face more difficulties when classifying refinanced loans as if they were normal loans, forcing institutions to increase their provisions.
A high executive, in an interview with the Financial Times, has declared that “our banks will need more provisions”.
“These provisions will affect results, but we still do not know to which extent. We cannot know it right now, but we believe that extraordinary provisions of around 5000 and 10000 million Euros will be necessary”, he added.
It is planned that these new provisions will affect results negatively, at a moment where institutions have seen their profit reduced in their own market.
Spain continues immersed in a recession that has been going on for two years, and in which companies and homes have suffered the consequences of the burst of the real estate bubble and the unstoppable increase of the unemployment.
Both analysts and Spanish authorities believe that the new strategy of the Bank of Spain towards refinanced loans will force the weakest institutions that do not have international presence, to get more capital through the sale of assets, capital extensions or asking for more money from the banking rescue fund.
However, the high executive of the Bank of Spain was convinced that “banks will be able to face this situation”, taking into account that the provisions will not have to be done all at once, but depending on the due date of the refinanced loans.
According to experts, the financial impact will be much higher on the smaller institutions; the more solid banks with an important international presence such as Banco Santander or BBVA, generate enough profit to assume the extraordinary provisions easily.
The situation of the institutions that were nationalized last year is especially worrying. Bankia, that has become the example of the Spanish banking crisis, has most of the assets that are currently in the hands of the state.