Spanish banks to set aside €4.5bn

Banco Santander SA and Banco Bilbao Vizcaya Argentaria will set aside €4.5bn to meet a Spanish government order to boost real estate provisions as analysts speculate the industry may need more.

Santander, Spain’s biggest bank, said it will make €2.7bn of pre-tax provisions while its largest rival BBVA will take pre-tax charges of €1.8bn, the lender said. Bankia, taken over by the government last week, said it would need an extra €4.7bn before tax. Bank shares fell.

Spanish banks have used three-year emergency loans from the ECB to cover funding needs and buy the nation’s bonds as doubts about hidden losses on their balance sheets drove up their financing costs and kept them locked out of wholesale debt markets.

The government on May 11 ordered banks to make a further €30bn of provisions to cover real estate losses in its latest bid to bolster confidence in the financial industry.

Meanwhile, ECB borrowing by Spanish banks jumped 16% to a record €263.5bn in Apr after lenders tapped emergency loans.

Net average ECB borrowing climbed from €227.6bn in Mar and €42.2bn in Apr 2011, the Bank of Spain said yesterday. Gross borrowing was €316.9bn, little changed from Mar, and accounted for about 28% of ECB borrowing by all euro-region lenders in the month.

The Spanish government said on May 11 it would require banks to take about €30bn of additional provisions to cover potential losses on €123bn of real estate-linked lending that is still performing.

The government’s fourth attempt in three years to clean up the industry comes after €53.8bn of charges and capital ordered in Feb. Spain will hire two auditors to value industry assets as it addresses investor concerns about hidden losses on bank balance sheets.

“You can’t argue that the overall provisioning number isn’t bigger and that’s all to the good, but there are still uncertainties,” said Daragh Quinn, an analyst at Nomura International.

“We’re going to have to wait until the auditors come back with their valuations to be sure that these additional provisions are going to be enough.”

Santander said it still has €2.3bn in provisions pending from a previous decree in Feb and plans to fully absorb the total €5bn this year.

The after-tax impact for the lender from both orders is €2.9bn, taking into account €900m in provisions it will make using proceeds from the sale of a unit in Colombia, the Santander, Spain-based bank said.

Santander said the new provisioning effort won’t affect its current capital ratios.

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