Spain now holds 176 bln Euros in real estate risk

 

Spanish banks, estimated to be holding around 176 billion euros in troubled real-estate assets, are facing uncertainty due to a weak economy which could mean that bad loans will increase, the Bank of Spain said earlier today.

"In the next few quarters, the volume of asset-impairment losses can be expected to remain high," the regulator said in its 6 monthly report on financial stability. "This, along with the foreseeable adverse trend in net interest income, constitutes a difficult scenario for the income statement of Spanish banks."

Spanish banks look set to accumulate higher costs of borrowing after their access to wholesale debt markets is becoming more difficult, and the country's weakening economy saps demand for lending and threatens to push an industry loan default rate even higher. Lending to Spanish financial institutions has fallen dramtically of latea, and funding from the bond markets "remained practically closed," the Bank of Spain said.

The Bank of Spain went on to say how lenders now have exposure to an estimated 176 billion euros in potential bad debt in real estate assets, a figure that includes questionable property holdings, foreclosures and general loans which have already attracted concern.

The findings of the report now mean that some 52% of total lending to Spanish property developers and 11.4% of total of all loans, the Bank of Spain said. Provisions had been set aside to cover 33% of the "troubled exposure" as of June, the regulator said.