19 December 2012

Bloomberg: Spain's $185 billion restructuring test for Rajoy cleanup

A rush by recession-hit Spanish businesses and consumers to refinance their loans will test Prime Minister Mariano Rajoy's pledge of a "definitive" cleanup of the nation's crisis-hit banks.

Spain’s banks have restructured about €140 billion ($185 billion) of loans outside the country’s crippled real estate industry, according to Oliver Wyman, a consulting firm that did a stress test of Spanish lenders. Bad loans surged to a record 11.2 per cent of total lending, the Bank of Spain said yesterday.

Spain has ordered banks to recognise €84 billion of losses to purge their balance sheets of real estate as Rajoy recapitalises at least four failed lenders with about €40 billion of European bailout funds.

While small and medium-sized businesses have restructured as much as 21 per cent of the €230 billion they owe, according to Oliver Wyman, total non-performing loans in the country grew by €7.8 billion to €190 billion in October, the Bank of Spain said.

Rajoy, 57, said two days ago that the measures Spain has taken to strengthen banks meant 2012 would be remembered as the year it laid the ground for recovery. “The definitive cleanup of our financial system will contribute decisively to restoring confidence in the Spanish economy”, he told members of his party in a speech in Toledo in central Spain.

With the five-year economic slump showing little sign of easing, businesses and consumers are approaching banks to negotiate lower interest rates and longer maturities on their borrowing. The economy may shrink by 1.5 per cent both this year and in 2013, according to the average estimate in a Bloomberg survey of 37 economists. 

Bankia and the three other Spanish lenders bailed out by the European Union must transfer their real estate to a so-called bad bank, known as Sareb.

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