Spanish banks reserve money for real-estate losses

Three of Spain’s largest banks have released details of their plans to comply with government regulations to provide provisions to cover real-estate losses.

Last week, Banco Santander announced that they had set aside €1.8 billion to cover losses on repossessed homes and they now plan to add a further €2.3 billion to this reserve.

Banco Bilbao Vizcaya Argentaria (BBVA) say they will set aside €1.4 billion, which will be added to money it had already reserved before the government regulations were announced.

BBVA made it clear that its good results in 2011 meant it would be able to “entirely absorb” losses in 2012 using this money.

Caixabank also stated it is looking for an extra €2.4 billion to set aside to cover its real estate assets and losses.

Manuel Gonzalez Cid, financial director at BBVA, told Reuters that “These are the strongest banks in the Spanish financial sector so it’s not surprising they can manage the [requirements] through generic provisions or by bringing forward other capital buffers.”

As well as downgrading Spain’s sovereign debt rating this week Moody’s also downgraded Catalunya Banc and Bankia’s debt and deposit ratings over concerns that they are unlikely to meet the requirements for covering real estate losses as laid out by the government.

Immigrants Lose in Imploding Spanish Housing Market

Today, borrowers like Numke are the most likely to fall behind on mortgage payments and lose their property, according to a Moody’s Investors Service study of 890,000 mortgages from 2006 through 2008. The average default rate for foreign residents is “strikingly high compared with mortgage loans to Spanish residents,” Moody’s wrote in the report last month.

Faced with mounting losses, Spanish banks have reduced new lending, which the National Statistics Institute in Madrid said fell 35.8 percent from a year earlier in November, the 19th straight decline. The bad loans to immigrants are also complicating a push for Spanish banks to recognize greater losses on real estate they accumulated during the crash and driving buyers from the 182 billion euro ($240 billion) Spanish residential mortgage-backed securities market.

“Deals with a significant portion of foreign residents, whether immigrants or vacationers, are double no deals for me,” said Alexander Fagenzer of Union Investment GmbH in Frankfurt, which oversees 120 billion euros. “Incentives for those borrowers to keep paying are significantly lower than for Spanish residents,” and that’s “key in a country facing high levels of unemployment and declining housing prices.”

Source: Business Week