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Banks still on the hook for billions of Euro in dodgy real estate loans

Spain is still littered with broken developments
Spain is still littered with broken developments

Despite recent signs of improvement from the property market, the Spanish banking sector still has hundreds of billions of Euro worth of dubious real estate on its books.

The Spanish banking system is still weighed down by €238 billion in dubious real estate assets on balance sheets, according to a recent report by financial consultants Analistas Financieros Internacionales (AFI).

The value of impaired real estate assets is practically 9% of assets in the Spanish banking system, no small amount considering the challenge to improve capital ratios.

With so much dubious real estate still on the books, further provisions of as much as €20 billion are on the cards, warn AFI, which could cause problems as the new Basel III banking regulations come into force over the next few years.

Dodgy real estate has slashed Spanish banking sector returns in half, argue AFI, making it even harder to build up capital ratios and beef up balance sheets. Capital tied up in dubious real estate assets could be better employed in profitable new loans that would help the Spanish economy recover.

However, the challenge of complying with new banking regulations in Basel III is not a strictly Spanish problem, according to the international ratings agency Moody’s, more like a European problem. Banks will have to focus on more selective lending, higher spreads on loans, and higher fees in order to get capital ratios in shape.


SPI Member Comments

5 thoughts on “Banks still on the hook for billions of Euro in dodgy real estate loans

  • Interesting that banks have been allowed to fleece people with outrageous fees and policies, foreclose and eject people from their homes for supposedly being irresponsible when many banks too were irresponsible in lending, take taxpayer money for bailouts but continue excessive salaries, bonuses and lavish spending, refuse to sale their inventory at bargain prices to people, instead bundling the taxpayer funded bailout properties to sell to investment companies at huge discounts and now this.

    Tell me again why the entire financial services industry should not be nationalized?

  • Mark Darlington says:

    Also many repossesions lie empty and in disrepair, so over time the value the banks have on their books is goibd down, as well as having many illegaly built properties…

  • Why is the IVA at 10% for new properties? This is huge hold on economic activity and makes easy to understand why the backlog does not move. A new house in Spain causes a large ripple effect in the economy since the houses are sold as a shell that requires a significant additional investment!!!

  • I have no sympathy for the Banks, would someone please explain in simple English why they the Bank are stubbornly challenging cases when they are clearly guilty of not honouring their obligations re the Law regarding the return of deposits Law 57/68.

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