Fitch's calls Spain real estate reforms 'big but necessary'

 

Fitch's credit ratings agency yesterday commented how Spain's new real-estate asset rules were a 'big but necessary' measure in moving the country's banks away from a further crisis.

The terms of new rules apply stricter regulation on real estate held by Banks, and harsher capital limits being imposed to meet the European Banking Authority's 9% core capital requirement.

The exposure to real-estate sector by Spanish Banks at the middle of 2011 reached €323 million, of which €175 million was potentially problematic, according to the Bank of Spain.

The latest reforms will require the banks to increase their capital levels in a short period of time, during an economic slump which has hit their overall operating performance.

The new rules intend to reduce the real estate exposure for many banks by increasing the levels of capital held as insurance by the banks. Fitch's held that the measure is required in order to stimulate credit and promote economic growth.

The ratings agency said how the larger financial institutions should be able to meet the new requirements without any negative impact on their ratings. However, smaller banks, notably those relying on capital injections from the state, will find it harder to comply with the rules within the timescale, given their low revenue generation and tighter capital.

Banks that merge with smaller institutions may also a face a reduced rating due to pressure due to reduce their risk exposure, additional provisioning and capital needs and execution risks, Fitch added.

Fitch said it expects larger financial institutions to report lower earnings due to the change, while some smaller banks could report losses in 2012 unless they register capital gains.