The Spanish banks’ burden
Spanish bank entities’ toxic assets continue to increase and they are a further factor of the currently weak economic recovery in Spain. The Spanish banks’ burden:
Spanish banks accumulate up to 350.000 million euros in their accounts in ‘toxic assets’, the equivalent to a third of the Spanish GDP. Such an amount signifies a burden for Spanish bank entities and that is why they are implementing measures to get rid of their nonperforming assets and to regain profitability.
These types of assets do not contribute incomes and force to reserve capital and to make provisions to face losses that occur when they are sold. They also limit banks’ lending capacity.
Thus, Spain is the fourth European country most exposed to the negative effects of banking toxic assets’, after Ireland, Portugal, and Italy.
In Spain, the consequences of the housing sector crisis in 2008 caused the number of bad debts, unsold properties, and deferred credits grow quickly. Buyers could not pay them back and this resulted in the sinking of bank entities.
At the moment, it is calculated that Spanish banks are accumulating 140.000 million euros in nonperforming loans; different kinds of properties such as housing developments and land worth between 20.000 million and 100.000 million euros in deferred credits.
The obstacle posed by these assets is compounded by the monetary policies at a zero rate of the European Central Bank (ECB). This has meant a decrease of 1.3% in the incomes of the Spanish banks that are contributors to the stock exchange. It is more difficult for them, but more compelling, to get rid of that burden now.
The strategies adopted include the sale of their toxic portfolios with discounts reaching an average of up to 30% of product value and in the housing case, the sale of real estate and mortgage NPLs to specialized funds management assets.
The consolidation of Spanish banking is fundamental to move forward in the economic recovery, which is still emerging and inconsistent. However, not everything is acceptable when getting rid of toxic assets. Spanish banks should not repeat the mistakes that lead us to the crisis and, through the ethics of the corporate social responsibility, contribute to a growth that is in line with the interests of the citizens.
At Del Canto Chambers, we are specialized in the legal and commercial aspects of the housing market and we can be contacted at email@example.com
Del Canto Chambers’ Editorial Board.