Troika still concerned by Spanish banking and property sectors

Spain’s banks have made substantial strides forward under the terms of a rescue loan for the financial system, European authorities reported yesterday. But they also highlighted ongoing concerns for the sector, including in the property area.

"Risks to the economy and hence to the financial sector remain elevated as Spain continues to undergo a difficult process of correcting large pre-crisis imbalances," the International Monetary Fund said.

The appraisal was part of a preliminary review of the Spanish banking system’s progress following a visit to the country by members of the troika between May 21st and 31st.

Madrid has received €41 billion for its banks since requesting assistance last summer. Up to €100 billion was made available, although the government insists it will not need that amount. “On the basis of the review, it can be concluded that the programme remains on track,” said a European Commission statement.

Toxic assets
Among the successes noted were banks' recapitalisation, an improvement in liquidity and the transferral of toxic assets to Sareb, Spain's Nama.

However, the statement warned “the adverse economic situation, continued deleveraging needs of the Spanish non-financial sector, and adjustment in the real estate market” were affecting lending volumes and hurting the financial sector’s asset quality.

Spain’s banking sector ran into trouble last year, after lenders’ exposure to the property sector became apparent.

The troika programme requires the most vulnerable lenders to shed toxic property assets, slim down and refocus their operations.

The country's fourth-largest lender, Bankia, has been the biggest single recipient of the EU rescue, receiving some €18 billion of the €41-billion package. Most of the rest has gone to three other nationalised banks.

The summary also acknowledged the unique challenges that Spain’s mortgages market presents the government. Evictions of Spaniards unable to keep up monthly payments have become one of the most visible consequences of the slump. Earlier this year, the government of Mariano Rajoy reformed the mortgages law in homeowners’ favour, but not enough to satisfy anti-eviction campaigners.