Reforms will see “lower house prices,” minister promises

Economy Minister Luis de Guindos on Thursday announced details of financial reforms that seek to encourage bank tie-ups and "put homes on the market at reduced prices." 

The move follows up on campaign promises by the Popular Party (PP) to shore up Spain's banking sector by going further with reforms initiated by the Socialists, which included mergers for savings banks. The conservative government has pledged to allay market fears over Spanish banks' exposure to the real estate bubble, which burst in 2008.

Lenders wishing to merge have four months to pitch their proposal to the executive, which will grant authorization after consulting with the Bank of Spain, said De Guindos. Tie-up operations should be completed by January 1 of next year.

The economy chief also said that the administration will pump more money into the bank bailout fund, known as FROB, to help lenders in need. It will do so by issuing new debt, although De Guindos denied that the reform will eat up public resources.

Lenders will also have to set aside an additional 50 billion euros over their existing provisions to cover for sketchy real estate assets on their books, a measure that De Guindos had already announced earlier.

The reforms, said De Guindos, will help banks overcome their problems accessing capital on the markets and get credit flowing again to struggling households and businesses.

According to his forecast, once the reform process is completed lenders will be able to cover for up to 80 percent of their losses on land investments, 75 percent of ongoing developments and 35 percent of finished housing.

The minister added that these measures will help ensure that risky property assets on lenders' books, which currently total around 170 billion euros, are valued at more realistic prices. Because of that, the reform will "put homes on the market at reduced prices."