Madrid, Spain (TOE) - The Spanish government has announced a new set of financial reforms, particularly aimed at cleaning up country's banking system infested with bad loans.
The banks will have to raise the money or borrow from the government at an annual interest rate of about 10%. Spain announced a drastic reform on Friday forcing banks to set aside a new 30bn euro ($39bn) financial cushion on top of 54 billion euros ordered in February as insurance against bad loans on property.
The new rules also require banks to separate property assets from their balance sheets. The government also ordered an independent audit on loans and property assets across the entire banking sector, as the European Union had asked.
The government of Mariano Rajoy, the Spanish prime minister, has taken the sweeping action just two days after it effectively took over the fourth-biggest bank, Bankia, to salvage its balance sheet dripping in red ink. Bankia had a 4.47bn-euro loan by the Spanish bailout fund converted into shares.
It predicted that the Spanish economy would contract by 1.8% in 2012 and by 0.3% in 2013. The Commission also said that Spain's budget deficit would be 6.4% this year and 6.3% next year.
But Spain's economy minister Luis de Guindos said that the country would meet its target of a 5.3% deficit this year and 3% in 2013. Banks have until the end of the year to move their property holdings into asset management firms for a fire sale, the economy minister said.
Spain's banks were hit by billions of euros of losses after a decade-long property bubble burst in 2008 and concerns about them, and the country's overspending regional governments have fanned fears of a new eurozone debt crisis.
Toxic assets now total 184 billion euros, but many fear the hole is even bigger. Successive waves of bank sector clean-ups have failed to convince investors.
timesofearth.com
The banks will have to raise the money or borrow from the government at an annual interest rate of about 10%. Spain announced a drastic reform on Friday forcing banks to set aside a new 30bn euro ($39bn) financial cushion on top of 54 billion euros ordered in February as insurance against bad loans on property.
The new rules also require banks to separate property assets from their balance sheets. The government also ordered an independent audit on loans and property assets across the entire banking sector, as the European Union had asked.
The government of Mariano Rajoy, the Spanish prime minister, has taken the sweeping action just two days after it effectively took over the fourth-biggest bank, Bankia, to salvage its balance sheet dripping in red ink. Bankia had a 4.47bn-euro loan by the Spanish bailout fund converted into shares.
It predicted that the Spanish economy would contract by 1.8% in 2012 and by 0.3% in 2013. The Commission also said that Spain's budget deficit would be 6.4% this year and 6.3% next year.
But Spain's economy minister Luis de Guindos said that the country would meet its target of a 5.3% deficit this year and 3% in 2013. Banks have until the end of the year to move their property holdings into asset management firms for a fire sale, the economy minister said.
Spain's banks were hit by billions of euros of losses after a decade-long property bubble burst in 2008 and concerns about them, and the country's overspending regional governments have fanned fears of a new eurozone debt crisis.
Toxic assets now total 184 billion euros, but many fear the hole is even bigger. Successive waves of bank sector clean-ups have failed to convince investors.
timesofearth.com
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