Spanish savings banks have begun selling off the large property portfolios they acquired as collateral from loan defaults in an effort to improve solvency ratios, a move which risks further falls in property values that could impair the value of their asset books.
As lenders have assumed the collateral on defaulted loans, local financial institutions have collected $12.2 billion of properties over the past 12 months. So far the banks have held on to the majority of their property portfolios. The banks saw building property portfolios as a holding operation until an economic recovery allowed for the disposal of such assets at acceptable prices — a strategy adopted successfully during a recession in the early 1990s.
But now banks are facing new demands for liquidity, which will force them to market more property.
First, the downturn has meant smaller inflows of cash held in deposits and bank accounts. Secondly, the Bank of Spain recently required local financial institutions to set aside more money to cushion potential losses from a drop in the value of repossessed properties. Banks must now set aside 20% — up from 10% — of the value of a property held on their books for more than one year.
Caja Madrid, Spain's fourth-largest financial institution by assets, said it sold 600 properties from January to September for about $144 million and estimates it has real estate assets worth $1.44 billion.
Smaller rival Caixa Catalunya said it unloaded 800 properties from a total of 3,600 it reported owning in May, while Banco Santander SA, the country's largest bank by assets, said it unloaded about 1,000 properties from January to October.