Spain's top four banks will build a new 11.3-billion-euro ($15 billion) cushion against bad loans, latest statements showed Monday, but investors feared it was not enough.
Spain's top four banks announced 11.3 billion euros ($15 billion) in extra bad-loan provisions to meet new rules but their shares plunged Monday as investors feared worse to come.
The additional cash complied with a drastic government reform unveiled Friday, obliging Spanish banks to set aside an extra 30 billion euros in 2012 in case loans to the collapsed property sector go bad.
That was on top of the 53.8 billion euros the banks were told to set aside to comply with reforms enacted in February.
Under the latest reform, Prime Minister Mariano Rajoy's conservative government charged two auditing firms with valuing banks' exposure to the property sector.
It also forced banks to remove seized property assets from their balance sheets and place them in separate agencies.
The big banks revealed the financial impact of the new rules for this year in a series of statements issued up to Monday:
-- Santander, the biggest eurozone bank by market value, said it would set aside an additional 2.7 billion euros.
-- BBVA, the second largest Spanish bank, said it would make an additional 1.8 billion euros in provisions.
-- CaixaBank, the country's third largest, will provision 2.1 billion euros more.
-- Bankia, which the government announced last week will be nationalised to salvage its balance sheet from a vast exposure to the property sector, said it would set aside 4.7 billion euros.
Among others, Banca Civica, which is merging with CaixaBank, will provision 1.2 billion euros; and number-five bank Banco Popular said it would set aside a net 2.3 billion euros, without giving gross figures.
Investors sent banking shares into a slide despite the reform, enshrined in a royal decree, which was welcomed by European and IMF officials.
By early afternoon, Santander had slumped 3.74 percent to 4.689 euros; BBVA dropped 3.64 percent to 5.052 euros; and Caixa tumbled 1.14 percent to 2.42 euros.
Bankia plummeted 9.22 perecnt to 1.88 euros, bringing its accumulated losses so far this month to 27.5 percent.
Bank of Spain figures show the commercial banks held problematic real estate assets, including loans and seized property, of 184 billion euros, 60 percent of their property portfolio at the end of 2011.
In a further sign of strain, central bank data Monday showed Spanish banks boosted their borrowing from the European Central Bank to a record 263.5 billion euros in April as they took up emergency cheap loans.
New York-based credit risk assessor Moody's Investors Service said in a report that the state takeover of Bankia and the extra provisions should induce banks to better protect against risk.
But banks remained vulnerable to rapidly rising problem loans, it warned in a weekly report.
"We view many Spanish banks as vulnerable to the current recession and ongoing real estate crisis," Moody's said, warning of growing losses in areas not covered by the latest reform such as home mortgages, consumer fianance and loans to small and midsize businesses.
The government has said banks unable to finance their own provisions can borrow from the state-backed Fund for Orderly Bank Restructuring (FROB) at an interest rate of 10 percent.
This, Moody's said, could leave the state taking on more debt.
The agency said it estimated total recapitalisation needs for the banks at 50 billion euros, in addition to 15 billion euros already committed by the FROB.
"However, there is a risk that further provisioning and recapitalisation will be required, increasing the government's already high debt burden further," Moody's said.
It warned the general government debt ratio could rise to more than 90 percent of gross domestic product in 2013, nearly triple the low of 36 percent in 2007.
Moody's said Spain could still turn to the European rescue mechanisms to find funding for its banks -- an option that the government has refused to countenance.
Concerns over the banks leaked into the sovereign debt market, forcing Spain to pay moderately higher borrowing rates as it raised 2.903 billion euros ($3.7 billion) in an auction of 12- and 18-month notes.