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Spanish lender Banca Civica booked falling profits, rising bad loan rates and slipping quarterly capital reserves in 2011 results as government demands for banks to write down real estate losses cranked up pressure on the bank.
Banca Civica, alongside Bankia and Banco Popular , is one of the Spanish banks with a heavy exposure to the country's collapsed property sector with around 72 billion euros of real estate loans on its books.
Government demands that banks write down losses from a decade-long housing boom that ended four years ago is aimed at forcing a second round of consolidation amongst Spain's banks as weaker players struggle to fill capital holes on their own.
"Prospects remain challenging, with the bank looking vulnerable from an earnings and solvency point of view after the announcement of the new provisioning regulation," said Ignacio Cerezo, banking analyst at Credit Suisse.
Banca Civica said it had tapped Wednesday's European Central Bank auction for 6.1 billion euros, a third more than the 3.7 billion it took in December's operation.
The bank, formed from the merger of four savings banks and which listed on the Spanish stock exchange last year, said it would use cash from the auction to buy higher-yielding sovereign bonds and use the proceeds from the 'carry trade' to prop up 2012 results.
Civica has said it can meet the government's provisioning requirements, that it has a comfortable cash position and that it has maturing debt covered until 2015.
A source has told Reuters the bank has held talks with NovaCaixaGalicia, Ibercaja, Popular, Caja 3 and Liberbank about possible mergers in the second round of bank consolidation which will likely whittle down numbers to around 10.
Net profit at the bank fell 6.5% to 183.5 million euros from 2010. Bad loans as a percentage of total lending rose to 6.35% from 4.59% at end-December 2010.
Core capital, although up from the 8.06 percent booked at end-December 2010, slipped to 9.01% from 9.6% at the end of Q3.