Bloomberg News

Spanish Banks Risk Loan-Book Losses as Economy Shrinks, IMF Says

June 19, 2013

The International Monetary Fund said Spain’s recession is putting the country’s lenders at risk of a further deterioration on their loans.

“The macro downsides could trigger a negative feedback loop between credit and the economy, with deteriorating loan books and pressure on profits,” the IMF said in a report today. Banks should continue to “reinforce the quality and quantity of capital, including by being very prudent on cash dividends.”

Spanish banks’ bad loans rose in April to 10.9 percent of their total lending from 10.5 percent a month earlier as companies and individuals are buffeted by a contraction that pushed unemployment to 27 percent. Economy Minister Luis de Guindos said yesterday lenders will need 2 billion euros ($2.7 billion) of capital to offset losses related to new rules that demand higher provisions for refinancing and restructured loans.

The government has injected 41 billion euros of European Union loans into the financial system to help banks to offload bad real estate credits as part of its efforts to restore lending to businesses and families. The loans are being provided via the European Stability Mechanism.

Spain also could help banks to restore lending by swapping deferred tax assets for tax credits, the IMF said the report. The government should also design risk-sharing programs focused on loans to small- and medium-sized business.

The IMF’s base case for Spain sees a return to economic growth later this year, the Washington-based lender said. The growth rate should reach about 1 percent in the medium term.

To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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