FINANCIAL CRISIS

"Bad bank" is a "bad idea," says Santander chief Botín

Government rules out state aid to liquidate toxic loans Bankia's problematic real estate assets stand at €31.8 billion

Emilio Botín, the chairman of leading Spanish lender Santander, on Friday came out against the idea of setting up a bad bank to absorb the sector's toxic assets.

The government is planning to create rules that will force banks to remove problematic loans to the real estate sector and fold them into separate companies. These, however, would not have a banking license and the purpose of the firms would be restricted to selling off these assets. It would essentially serve the purpose of a bad bank, but the government eschews the use of that expression as it insists the state will not cover any losses that accrue.

"It's not good to set up a bad bank," Botín told reporters. "I don't like it; I said so from the first day, and the government has clearly said there will be no bad bank here."

The government has also obliged banks to increase their provisions for possible losses on real estate assets on their books by 53 billion euros.

Each bank will create a vehicle with rules that the government will define in a few weeks"

Botín said the Spanish financial system has made "very significant adjustments" over the past two years, ones that the "markets have yet to take on board."

Economy Minister Luis de Guindos said Thursday that the rules for removing toxic assets from the banks' balance sheet would be ready shortly. He said the assets would be transferred to the instrumental companies at "market" prices and provisioned for potential losses.

"Each bank will create a vehicle that will have rules that the government will define in a few weeks," De Guindos said.

In a report on the Spanish banking sector issued last week, the IMF said: "Unless the weak institutions are quickly and adequately cleaned up, the sound banks will suffer unnecessarily from a continued loss of confidence in the banking sector."

It suggested that public funding might be necessary to reduce the burden on the banks, but the government is against this idea.

Meanwhile, Banco Financiero y de Ahorros (BFA), including its commercial banking arm Bankia, said Friday it had problematic assets related to the floundering real estate sector at the end of last year of 31.799 billion euros, for which it had coverage of 11.9 billion.

Doubtful assets were up three billion euros from a year earlier but provisions for them increased by five billion.

BFA and Bankia failed to meet the four-month deadline for presenting its earnings and decided to present them unaudited.

The results show the Bankia group had 10.564 billion euros in doubtful loans and another 7.283 billion in sub-standard ones in the real estate sector alone, for which provisions for potential losses amounted to 7.283 billion. That represented 47.6 percent of total lending to the property sector, which stood at 37.517 billion at the end of last year.

The non-performing loan ratio for the sector rose to 28.1 percent from 18.2 percent, with the total default rate rising to 8.66 percent from 6.34 percent a year earlier. The group had other real estate assets of a gross value of 13.951 billion euros, a figure reduced to 9.083 billion after impairment charges worth 4.876 billion. That made BFA-Bankia the biggest property company in the country.

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