Spanish Banks expected to make losses over money lent to property sector

Yesterday Javier Gómez Navarro, the Chairman of the Chamber of Commerce, said that banks and building societies in Spain would not recover 30% of the money lent to the property sector, estimated to be 97,500 million euros. According to the Spanish Mortgage Association (AHE) property developers owe a total of 325,000 million euros to financial institutions – half of which corresponds to loans taken out for the purchase of land.

Gómez Navarro explained that ‘it would be difficult’ to know when the rest of the money would be recovered. In relation to the losses suffered by estate agents he said that losses would not be recovered by construction companies because prices were not dropping.

At the end of January the president of AHE, Santos González, said that banks and building societies did not have the capacity to take on the debts incurred by the property sector which means that not only is viability of this sector at stake but also places the financial sector in a dangerous situation.

Elena Salgado, the Minister for the Economy said that the government did not have any plans to help out financial institutions if estate agents did not honour their debts.

In his analysis of the Spanish financial system, Navarro said that it did not want to recognise that it has been affected and insisted on the need for capitalization. He also warned that time was running out for it to take advantage of the approval by Brussels of the Fund for the Ordered Restructuring of Banks which was only in place until 30th June this year.

In his forecast for the first quarter of 2010 Navarro said that many banks would go into debt due to falls in their income as a direct consequence of the fall in the Euribor.