Spain wants banks to find an extra $45 billion: sources

Wed May 9, 2012 3:58am EDT
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By Carlos Ruano and Jesús Aguado

MADRID (Reuters) - Spain will demand banks set aside another 35 billion euros ($45 billion) against loans to builders, financial sources said, as it battles to rebuild confidence in a sector where huge losses have raised fears the country may need an international bailout.

Lenders are already writing off 54 billion euros on soured property assets dating from a 2008 real estate crash and the requirement to find more money to cover loans that are currently sound, but could sour as the economy deteriorates, will pile further pressure on banks as they battle to find extra capital.

The move is set to be announced after Friday's weekly cabinet meeting and will form part of a wider banking reform which will include an injection of public cash into troubled lender Bankia.

The government will demand banks raise provisions to a level equivalent to 30 percent of loans to housebuilders, one of the sources told Reuters late on Tuesday, up from a current 7 percent.

The Economy Ministry declined to comment.

Spain's banks have 298 billion euros in loans to building developers on their books, equivalent to around 30 percent of the country's gross domestic product.

Around half of them are already in arrears and as the economy deteriorates more will fall into default. Analyst estimates as to how much more banks need to set aside against loan defaults rise to as much as 100 billion euros.

Banks, even strong international lenders like Santander and BBVA, are already posting big falls in profit as they write off losses on bad property investments and increase capital to protect against sovereign default under European guidelines.   Continued...

President of Spanish bank Bankia Rodrigo Rato gestures during a news conference in Madrid, in this February 10, 2012 file photo. REUTERS/Andrea Comas/Files