Friday 22 September 2017

Spain ignoring mortgage losses to avoid bailout

Students protest against cuts in the public education system in Madrid yesterday. Banners read 'Europe of knowledge, not of the merchant’ and ‘More education, less repression'. Reuters
Students protest against cuts in the public education system in Madrid yesterday. Banners read 'Europe of knowledge, not of the merchant’ and ‘More education, less repression'. Reuters

Yalman Onaran

SPAIN is underestimating potential losses at its banks, by ignoring the cost of sourcing residential mortgages, as it seeks to avoid an international rescue like the one Ireland needed to shore up its financial system.



The Spanish government has asked lenders to increase provisions for bad debt by €54bn to €166bn.

That figure is enough to cover losses of about 50pc on loans to property developers and construction firms, according to the Bank of Spain -- but wouldn't leave anything for defaults on €1.4trillion of home loans and corporate debt.

If those are taken into account, banks will need to increase provisions by as much as five times what the government says, or €270bn, according to the Centre for European Policy Studies, a Brussels-based research group.

Plugging that hole would increase Spain's public debt by almost 50pc or force it to seek a bailout, following in the footsteps of Ireland, Greece and Portugal.

Patrick Lee, a London-based analyst at Royal Bank of Canada, said: "Ireland managed to turn its situation around after recognising losses much more aggressively and thus needed a bailout. I don't see how Spain can do it without outside support."

Spain, which yesterday took over Bankia, its third-largest lender, is mired in a double-dip recession that has driven unemployment above 24pc and sent government borrowing costs to the highest level since the country adopted the euro. (Bloomberg)

Irish Independent

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