Real estate investments keep souring for Spanish banks

Posted on October 28, 2010 by Mark

“Potentially problematic” investments in real estate rose to 181 billion Euros in June reveals the Bank of Spain.

When the Bank of Spain (BOS) calls an investment “problematic” you and I should probably read that as “toxic”. According to the latest report on Spain’s financial stability, written by the BOS, “potentially problematic” real estate investments held by banks in Spain rose to 181 billion Euros at the end of June, up 9pc from 166 billion at the end of 2009. To put that all in perspective, 181 billion Euros is more than 10pc of Spain’s national income.

“Potentially problematic” real estate investments? What’s included in that? Basically repossessions and bad loans.

The good news is that provisions exist, but they only cover 26pc of dodgy real estate investments, just 1pc more than back in December. The BOS also informs us that the rate at which investments are turning bad in the real estate sector is (slowly) slowing down, which is good news of sorts.

What does this all mean for owners and potential investors? Quite simply that banks have a massive stock of property to sell, and it is still growing, albeit at a declining rate.

Banking secrecy

The BOS also recommends banks make public more information about their dodgy real estate exposure and how they plan to manage it. “At a time of adjustment in the real estate sector, the lack of information can give the impression that the situation is worse than it really is,” says the report. Amen to that.