October 28, 2011 / 6:46 AM / 8 years ago

UPDATE 2-Spain's Bankia, Popular 'can meet new capital rules'

* Bankia says does not need state aid to meet EBA requirements

* Bankia to sell non-strategic assets

* Popular says can meet new requirements

* Popular plans to convert bonds ahead of schedule (Adds comments on meeting capital requirements)

By Tracy Rucinski

MADRID, Oct 28 (Reuters) - Spanish banks Banco Popular and Bankia said on Thursday they will be able to raise 3.5 billion euros ($4.9 billion) to meet new European core capital requirements, even as they forecast their bad loans would continue to rise due to the country’s soaring unemployment.

Popular, the biggest of Spain’s mid-sized banks, and which recently bought Pastor , said it could raise 2.362 billion euros by June next year by advancing the conversion of 1.2 billion euros in convertible bonds, by trimming assets and through its scrip dividend programme.

Newly-listed Bankia said its parent BFA will also meet the new requirements, 1.140 billion euros in its case, through organic growth and by selling assets in Austria and the United States as well as in Spain.

“BFA will reach the ... capital required by June 30, 2012, without needing public funds,” the bank said on Friday in its presentation of third-quarter results.

Spanish lenders, fresh from a government-driven shake-up of the financial system, have been struggling with wholesale money markets that are effectively closed to them while facing calls to increase provisions against their real estate loans.

European banks have been called on to raise a total of 106 billion euros of core capital by the end of June 2012 to shore up their balance sheets — part of a plan to restore confidence in the sector and contain the euro zone debt crisis.

After Greece, Spain’s banks were asked to raise the most new capital, but all so far have said they will be able to meet the new numbers.

However, Spain’s banks still have to contend with the large portfolios of property loans and assets they were left with when the country’s real estate bubble burst.

PROFITS WEAK, PROVISIONS UP

Spain’s unemployment climbed to a 15-year high in the third quarter, with almost 5 million people out of work, or 21.5 percent of the working population, the government reported on Friday.

And with economic growth slowing and the risk of a new recession looming, more and more people and companies in Spain are falling into arrears on loans, hitting banks hard.

Popular saw net profit fall 22.5 percent to 404 million euros ($571 million) in the nine months to September, hit by higher provisions against bad property-related loans.

The bank said it was too soon to predict when the unpaid debt trend would improve after bad loans as a percentage of total lending crept up to 5.85 percent at end-September from 5.58 percent at end-June.

Popular charged 615 million euros in provisions against property-related loans in the nine months to September, compared with 459 million a year earlier.

Bankia, formed by the merger of seven regional banks led by Caja Madrid, said it made a net profit of 295 million euros in the first nine months of the year, with bad loans as a percentage of the total spiking to 7.09 percent, one of the highest in its peer group.

Bankia, with more exposure to property than its rivals, said it had 1.08 billion euros of provisions at the end of September.

“The outlook still remains very uncertain,” said Daragh Quinn, banking analyst at Nomura International in London.

Net interest income, the difference between what a bank earns on loans and what it pays out on deposits, also fell at Popular, mirroring declines at other banks like Banesto and Bankinter as higher funding costs continued to squeeze margins.

Popular said it expected net interest income to grow in 2012 but warned the fourth quarter of this year would remain tough.

On Thursday the euro zone’s biggest bank Santander said it expected bad loans in Spain to keep on growing as Spaniards, blighted by unemployment and heavy mortgage debt, fall into arrears on payments.

Popular shares were trading almost flat at 3.438 euros, at 1400 GMT on Friday, while Bankia shares were down 0.5 percent at 3.631 euros per share. The European bank index was off 0.22 percent at 148.69. ($1=0.707 euros) (Additional reporting by Jesus Aguado and Tomas Cobos; Writing by Fiona Ortiz; Editing by Greg Mahlich)

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