Spain is expected to announce measures to strengthen its banking sector today, just two days after seizing control of Bankia, the country's largest real estate lender.
Analysts anticipate the government, after its weekly cabinet meeting, will require banks to set aside at least €30 billion more in provisions against bad loans, in addition to €50 billion of provisions already ordered in February by Luis de Guindos, the economics minister.
Spanish banks are sitting on a combined €180 billion of troubled assets, provisions have been made for about a third of which so far.
The savings banks, or cajas, have been particularly hit by the downturn, having financed much of the decade-long property boom that came to an abrupt halt with the start of the world financial crisis.
On Wednesday, Spain seized control of Bankia as a first step toward recapitalizing the company. Under the plan, a state-run bailout fund, known as Frob, will convert a previous €4.5 billion emergency loan into equity and in that way take full control of BFA, Bankia's parent, and obtain a 45 per cent stake in Bankia as well.
The economics ministry described the Bankia intervention as "a first step to guarantee its solvency," suggesting that it was preparing the ground for a capital injection, expected to be €7 billion to €10 billion.
The intervention had been expected after the surprise resignation Monday of Rodrigo Rato, the executive chairman of Bankia, who is also a former finance minister and had served as managing director of the International Monetary Fund.
The government is hoping at this stage to clean up Spain's banking sector without having to receive outside money, possibly by allowing banks to transfer their riskiest assets to state-guaranteed asset management companies.
Some analysts have suggested that the scope of Spain's banking problem, as well as a deepening recession that is quickly pushing up the number of mortgage defaults, would eventually require international lenders to step in, led by the European Union and its European Stability Mechanism.
Spain is also facing rising borrowing costs amid concerns about its own public finances as well as the political turmoil in Greece.
New York Times
