* Provisions must be raised to between 35-80 percent
* Banks have until end of yr to raise provisions from 30 pct
* Merged banks will be given two-years
By Sonya Dowsett
MADRID, Feb 2 Spain's banks must raise 50
billion euros ($65.86 billion) in extra funds to compensate for
foreclosed properties and bad loans to housebuilders festering
on their balance sheets, under new rules revealed on Thursday.
The centre-right government gave newly-merged banks and
banks planning tie-ups extra time, two years to write down
deteriorating assets by setting aside provisions. Other banks
will get one year.
"The Spanish banking system will emerge from this process
stronger, with fewer but more solid banks, meaning that Spanish
lenders will be among the healthiest in the European Union," the
Economy Ministry said in a statement.
Spain's battered banks have cut back on lending to families
and small businesses in a country desperately in need of credit
as it continues to battle the euro zone debt crisis and heads
into a second recession in four years.
By cleaning the banks' balance sheets of worthless property
assets, hammered in a property crash four years ago, the new
government hopes to rekindle investors faith in Spanish banks --
allowing them to borrow on the international money markets and
start lending at home again.
The banks have been largely shut out of interbank markets
ever since the Greek bail-out in early 2010.
Banks must make a specific provision from results totalling
about 25 billion euros across the entire sector, Economy
Minister Luis de Guindos said in a news conference.
In addition, banks must put aside capital equal to 20
percent of the book value of undeveloped lots and 15 percent of
the book value of unfinished developments. That will amount to
around 15 billion euros for all the banks and can come from
profit, capital hikes or convertible bonds.
For performing real estate loans, banks must make a generic
provision of 7 percent, taken against results, to total around
10 billion euros. Previously banks were not required to make any
provisions for those loans.
The government will lend to banks that struggle to meet the
new requirements through convertible shares. If a bank fails to
pay back the loan during this time, the state will take it over.
The reform is very similar to the former Socialist
government's 2009 round of mergers and recapitalisation. At that
time banks raised provisions against problem loans and property
losses to about 30 percent.
Provisions against losses will now rise to between 35
percent and 80 percent, depending on the type of asset or loan.
Banks looking to merge to meet the new requirements must
present their plans before May 30 of this year.