Spain lenders brace for tough year-end as new rules bite

Sun Jun 30, 2013 6:57am EDT
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By Julien Toyer

MADRID (Reuters) - Spanish lenders are bracing for lower profits and dividends and a tougher funding environment under new rules meant to prepare them for pan-European supervision next year and avoid a repeat of last year's multi-billion-euro bailout.

On Thursday, the Bank of Spain urged lenders to cap cash payouts to shareholders to the equivalent of 25 percent of profit and to be cautious on dividends paid in shares.

That came hard on the heels of another recommendation from the central bank to calculate the impact of removing minimum interest rate clauses on residential mortgages, a move that would lower payments for homemakers but hit bank profit.

Also a long-awaited European deal on how to distribute the cost of bank rescues hit share prices last week of some banks in the region's weaker countries, including Spain, on fears they could find it harder to attract funding.

Three banking sources said the new rules did not bode well for the second half of the year because they left investors with the impression that banks had not been fully cleaned up and that more measures were still to come.

"The new guidelines on dividends introduce more uncertainty in a sector which already registers high levels of insecurity at a time when the volume of additional provisions that banks will need to book is still unknown," said one of the banking sources, who declined to be named.

Lenders had already been asked by the Bank of Spain to review by September their 208 billion euros ($270.5 billion) in portfolios of refinanced loans.

Economy Minister Luis de Guindos said lenders would probably have to book another 10 billion euros in provisions to cover potential losses on those loans and seek 2 billion euros in fresh capital once the review is complete.   Continued...

Spanish flags are seen in front of the Bank of Spain headquarters in Madrid, May 9, 2013. REUTERS/Paul Hanna