Spain will force the country’s banks to increase provisions against losses on real estate loans by 30 billion euros ($38 billion) and will hire two auditors to gauge all the assets of lenders in the government’s fourth attempt to clean up the financial system.
Banks will have to raise their provisions on real estate loans that are still performing to 30 percent from 7 percent on average, Economy Minister Luis de Guindos said today in Madrid. The government will also force all banks to move real estate assets off their balance sheets so they can be sold, he said.
The plan aims to “give credibility and confidence to our financial system to help get credit flowing and to allow for real estate to be sold at reasonable prices,” Deputy Prime Minister Soraya Saenz de Santamaria said today at a press conference after a Cabinet meeting in Madrid to approve the plan.
The latest bid to cleanse the banking system after efforts in 2010, 2011 and February this year is part of Prime Minister Mariano Rajoy’s effort to quell doubts about hidden losses at lenders that have driven up the country’s borrowing costs.
Spain announced the takeover of Bankia, the banking group with the most real estate, on May 9 in another step to bolster confidence in a financial system burdened by 184 billion euros of what the Bank of Spain terms “problematic” assets linked to real estate.
“All the previous efforts have been announced with a drumroll and a big clash of cymbals but they weren’t credible in the end,” said Javier Diaz-Gimenez, an economics professor at the University of Navarra’s IESE business school in Madrid. “They must get it right this time.”
Banks have already had to set aside 53.8 billion euros of charges and capital ordered by the government in the previous cleanup effort in February.
Spain will take over Bankia by converting its 4.5 billion euros of preferred shares in the group’s parent company into ordinary shares, it said two days ago. Jose Ignacio Goirigolzarri, a former second-in-command at Banco Bilbao Vizcaya Argentaria SA, will replace Chairman Rodrigo Rato.
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