MADRID Mid-sized Spanish lender Bankinter (BKT.MC) reported a halving in nine-month earnings on Thursday, setting the tone for a sector still suffering the impact of a government-forced clean-up of toxic real estate assets.
Spain's banks are gearing up for the first funds from a 100 billion euro ($130 billion) European credit line, agreed in June to prop up banks brought low by a property crash compounded by rising loan defaults in a recession.
Spain has demanded banks set aside 137 billion euros to help cover losses related to 307 billion euros of real estate exposure, including undeveloped land and bad loans to developers.
Although Bankinter is not fully representative of the sector, as it is less exposed to the property market than others, the bank reported nine-month net profit of 72 million euros, down 51 percent on the year-ago period.
Bankinter is among seven banks that passed an independent "stress test" on the country's banking system in September. The audit, a condition of receiving the European aid, identified a capital shortfall of 59 billion euros in a severe economic downturn.
Bankinter wrote off all its losses under the government requirements in the first half of the year, but other banks still have to deal with more writedowns.
Banks have until December 2012 to write off losses, or 2013 if they are in the process of a merger.
Banesto's broker arm expects BBVA (BBVA.MC), Popular (POP.MC) and Bankia (BKIA.MC) to fully comply with provisioning rules in the second half of 2012 while it sees Caixabank (CABK.MC) and Sabadell (SABE.MC) making writedowns in 2013.
Several lenders, including Caixabank, Popular and Banesto, have already covered part or all of their provisioning needs by retaining profits in the first half of the year.
Heavyweight Santander (SAN.MC), due to report on October 25, has complied with 70 percent of the requirements, while BBVA (BBVA.MC), due October 31, has covered 40 percent of its needs.
In further steps to mend the sector, euro zone finance ministers will on Thursday and Friday discuss a European plan for a banking union that would pave the way for directly recapitalizing failed lenders with European money.
($1 = 0.7679 euros)
(Reporting by Sonya Dowsett and Jesús Aguado; Editing by Mark Potter)