IIF says Spain will need €60bn to prop up the banking system
SPANISH bank losses on bad loans could be as high as €260bn (£210.5bn), the International Institute of Finance (IIF) said yesterday, with up to €60bn needed to shore up the troubled country’s banking system.
The IIF used figures based on the hit that Irish banks took in the financial crisis to make its predictions, with the estimated losses on bad assets ranging from €216-260bn, but expected to fall towards the upper end of the forecasts.
As a result the IIF – a global association of more than 450 member banks that helped to negotiate the writedown of Greek debt in March – expects the Spanish banking sector to need an injection of €60bn to help it remain viable.
It said that Spain’s cajas, the country’s saving banks, would be particularly badly hit.
“Substantial divergences between individual banks suggest that government assistance will be needed for a significant number of banks, mainly the cajas,” the report said.
Most of the Spanish losses are expected to centre on commercial real estate loans, which are concentrated in the cajas.
The Spanish government nationalised troubled lender Bankia two weeks ago because it was unable to handle losses from a 2008 property crash.
However, even in the IIF’s worst case scenario, the estimated capital injection required would add up to just five per cent of Spanish GDP, well below the 33 per cent of Ireland’s GDP that was needed to recapitalise the country’s failing banks.
But the organisation also said that Spain’s macroeconomic outlook was worse than that faced by Ireland in 2008, and that further fall in house prices across the country could push the size of the losses up even further.