Hoping to put an end to a four-year banking crisis, the Spanish government late on Wednesday effectively took over Bankia SA, one of the country’s biggest banks, after days of market anxiety over the lender’s viability.
The center-right government of Spanish Prime Minister Mariano Rajoy told Spaniards the banking sector was safe and said more measures to strengthen ailing lenders would come today.
The sector has already been through three major overhauls since a building and property market crash in 2008, which left lenders with what is now about 184 billion euros (US$238 billion) in toxic assets, including repossessed housing complexes that stand empty.
Holding 10 percent of the banking system’s deposits, Bankia is by far the largest of eight banks that the government has rescued over recent years.
“Bankia is a solvent entity that continues absolutely normal operations and its clients and depositors have no cause for concern,” the central bank said in a statement.
The public seems to have accepted the government’s assurances and so far there have been no signs of any bank run.
Bankia’s exposure to troubled real-estate assets, including loans at risk of default and repossessed properties from bankrupt borrowers, is about 32 billion euros.
For years, banking analysts and critics have pushed Spain to go further in recognizing its banking troubles, which threaten to undermine the eurozone if the rescue is so expensive that it breaks Spain’s public finances.
With the economy in a second recession since 2009 and one in four workers jobless, banks face rising loan defaults beyond those connected with the construction bubble burst.
Spain will demand today that banks set aside another 35 billion euros against loans to the ailing building sector — above and beyond the 54 billion euros they are already provisioning this year — raising the possibility more public cash will be needed to rescue the country’s lenders.
The government is also expected to detail a scheme to remove toxic assets from banks’ books and sell them off.
The government earlier this week forced out Bankia chairman Rodrigo Rato, a former economics minister from the ruling party, and replaced him with Jose Ignacio Goirigolzarri, a prominent ex-banker from the Basque region.
Joerg Asmussen, a European Central Bank board member, yesterday said it was vital that Spain take added measures to shore up its banking sector.
“It is urgent [that Spain] take more measures for its crisis-hit banking sector,” Asmussen told the Handelsblatt daily, adding that Madrid must regain trust and launch an independent audit of Spanish banks.