Spain set to announce banking reform plan

Government expected to announce cleanup measures forcing banks to deal with so-called “toxic assets” on their books
Spain’s real estate bubble is blamed for the toxic assets crisis currently affecting the country’s economy [Reuters]

Spain is set to present new reforms to complete the clean-up of its banks after difficult last-minute talks between the government and lenders.
The Spanish government is expected to approve a plan on Friday to force banks to place toxic real estate assets in holding companies that would later sell them off.
The government is also expected to announce demands for the banks to set aside a further 35bn euros ($45bn) to cover sound loans in their real estate portfolios.
The government has already forced banks to make provisions of 54bn euros to cover bad assets.
“The text is being finalised after talks with the banks,” a government source told the Reuters news agency, adding that both the new provisions and the “bad bank” scheme would be approved on Friday.
Al Jazeera’s Sonia Gallego, reporting from Madrid, said the nationalisation of other banks should not be ruled out as an option yet.

“With the gravity of the economic situation [in Spain], it is getting increasingly difficult” for the government to refinance as much of the debt as it can, she said.

Spain effectively took over Bankia SA, one of the country’s biggest banks, this week after days of market anxiety over the lender’s viability.

Toxic assets

Spain’s banks were hit by billions of euros of losses after a decade-long property bubble burst in 2008 and concerns about them, and the country’s overspending regional governments have fanned fears of a new eurozone debt crisis.

Toxic assets now total 184 billion euros, but many fear the hole is even bigger. Successive waves of bank sector clean-ups have failed to convince investors.

According to our correspondent, the toxic assets are a result of a property bubble experienced in Spain before the recession.

“As a result, with the recession, so many people were left unable to pay for their mortgages, and the banks are left to deal with the after-effects.”

Banking reform is seen as urgent by many analysts, with yields on benchmark Spanish bonds currently close to six percent, meaning the country faces very high borrowing costs.

“The pressure right now is very high and the discredit would be huge if the reform was not to be approved this Friday,” a banking source told Reuters.

Source: Al Jazeera and Agencies

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