SPANISH BANKS / THE FINANCIAL TIMES LEX ( HIGHLY RECOMMENDED READING )

Spanish banks

Published: January 18 2010 09:33

Appearances can be deceptive. Compared to their Anglo-Saxon counterparts, Spain’s banks have escaped the worst of the global financial crisis. Instead, they have been more preoccupied with the property market collapse and steep downturn at home. Counter-cyclical bad loan provisions built up in better times have helped them, to an extent. But a recent 28 per cent slump in 2009 net profit due to sharply increased provisions at Banesto, Santander’s domestic banking subsidiary, suggests higher provisioning may be on the cards for others too. As the earnings season looms, cracks in the facades of domestically-focused banks, such as Popular and Sabadell, are likely to widen, revealing the extent of the decay in their loan books.

Property is the biggest source of pressure. Although official data suggest the residential property slide eased late last year and despite obvious oversupply, prices appear high given the falls in Ireland and the UK and could fall further. Corporate property lending is in poor shape too. Lenders have tried to keep non-performing property loans low by refinancing them, converting debt to equity, or by acquiring the underlying property. Nomura estimates that if property assets acquired by the third quarter of 2009 were treated instead as bad loans, the NPL ratio of, say, Banco de Sabadell would leap to 6.82 per cent from 3.87 per cent. The understatement is less pronounced at BBVA and Santander, whose international operations account for some two fifths and two thirds of profits.

Copyright The Financial Times Limited 2010.