Spain banks face more pain as worst-case scenario turns real

Rising Defaults

The default rate for 604 billion euros of Spanish home mortgages stood at 3.2 percent in June, according to the Bank of Spain. Banco Santander Chief Executive Officer Alfredo Saenz said in April that anyone saying mortgage defaults are a problem for Spanish banks was “saying something stupid.”

“I think this drop of 6.5 percent is a number that isn’t going to happen,” said Maria Dolores Dancausa, chief executive officer of Spain’s Bankinter SA, referring to the adverse macro- economic stress test scenario at a Madrid news conference today.

Loans newly-classed as in default fell in the third quarter for Bankinter, said Chief Financial Officer Gloria Ortiz on a webcast for analysts today after the bank published earnings. “We cannot say this is a trend,” she said. “The economic situation is complex so I would be prudent and expect further deterioration of the book next quarter and throughout 2013.”

Jobless Rate

Bad loans and the jobless rate are bound to increase as Spain attempts to cut its budget deficit to 2.8 percent of GDP in 2014 from 9 percent at the end of last year, Simon Maughan, a financial industry strategist at Olivetree Securities in London, said last week by telephone.

In the worst case scenario, Oliver Wyman’s stress tests predict unemployment of 25 percent this year rising to 27 percent in 2014. The rate will peak at 26 percent in 2013, according to the average estimate in a Bloomberg survey of 13 analysts.

It may be wrong to suggest, as the Spanish authorities do, that the higher rates of economic contraction estimated by Oliver Wyman are a remote possibility, said Daragh Quinn, a Madrid-based banks analyst at Nomura.

“I think that talk of 1 percent probability is going to come back to haunt them,” Quinn said in a phone interview.

The bad loans data published today by the Bank of Spain restated the bad loans ratio for July to 10.1 percent from a previously published 9.86 percent. The amount of bad loans for July was restated to 173.2 billion euros from a previously published 169.3 billion euros.

Bloomberg News

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