Sunday 18 March 2018

Spain's woes upstage AIB

THE continuing eurozone crisis is overshadowing AIB's success in raising €395m secured on UK mortgages.

AIB's triumph was the first time the state-owned bank had succeeded in raising unguaranteed funding since November 2009 and the first time it had raised any sort of funding since March 2010.

As long as the eurozone crisis continues, it looks like it will be a case of one step forward, two steps back for the Irish banks. In the same week as AIB staged a tentative return to the markets, over two-thirds of Greeks voted against the main political parties and Spain's government was forced to effectively seize control of Bankia -- its fourth-largest bank.

But Bankia's problems are only the tip of the iceberg. The cajas (local banks) are in even worse shape. A uniquely Spanish mixture of savings bank, building society and credit union, it is thought that up to a dozen of the 17 cajas are in serious trouble. Between them they have lent at least €80bn to the collapsed Spanish property market.

If those property loans are as bad as Bankia's (where over 80 per cent of its €37.5bn property loans are reckoned problematic) then the Spanish banking crisis could well end up dwarfing our own.

The Bank of Spain has ordered banks to increase their provisions against property loans by a further €54bn. However, Brussels-based think-tank, the Centre for European Policy Studies, reckons that the Spanish banks will have to increase their provisions by a massive €270bn.

Such an increase in provisions would increase Spain's public debt by half up to 100 per cent of GDP and force it to seek a bailout. If and when this happens, the moment of truth will have arrived for the eurozone. With Spain too big to fail and too big to bail out, the crisis may get worse before it gets better.

Sunday Indo Business

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