Spain rules out tougher provisioning for banks

 

Spain is ruling out asking its banks to set aside more provisions to cover potential losses on loans on top of writedowns enforced in 2012, a senior official from the economy ministry said on Thursday.

"Absolutely not," said the official, who spoke on condition of anonymity, in response to a question on further provisions.

As Spain's deep recession drags on, corporate bankruptcies have risen and so has speculation that the government could force banks to hike provision for bad loans to small- and medium-sized businesses, or on other areas of their portfolios like credit cards.

That would be on top of steep provisions enforced by the government last year against soured loans to property developers and real estate assets.

But the economy ministry official said that capital buffers established last year, based on an analysis of banks' loan books under a stressed economic scenario, were sufficient for banks to cope with their problem loans.

The EU loaned Spain €41 billion euros last year to rescue banks that crumbled when a long building boom collapsed in 2008. The government has taken over a number of banks and currently fully owns three that it plans to sell off.

The official said the ministry had ruled out merging the three banks it now owns.

He said the bank restructuring fund, or FROB, was looking to hire an international consultant to advise on the management of the banks, and that the three would be managed separately but could team up to negotiate better deals from providers.

UPSIDE SURPRISES

The official also confirmed that the country would return to quarter-on-quarter growth in the fourth quarter of the year, thanks to improved market sentiment and strong exports growth.

"If the risk premium continues to fall and financing for the private sector improves, the risks for Spain are on the upside, not on the downside. We can surprise," the official said.

The government's official outlook for gross domestic product is for a 0.5% contraction in 2013, compared with a market consensus of a 1.5% fall in economic output.

Spain is preparing to present a stability programme to Brussels by the end of April, the official said, which will contain updated forecasts. But it is not yet decided what the modification to the forecast for this year will be, he said.

He said that he expected independent forecasts for Spain's economy in 2013 would be adjusted in a more positive direction as economists start to take into account the strong performance of exports.