We now know how big the Spain’s banking black hole is – or at any rate what the experts think it is after audits of all the unlikely-to-ever-be-repaid loans from the bursting of the property bubble.
And it is less than European finance ministers had feared.
The result of these audits will be used by the Spanish government to determine how much of the 100 billion euros of available European funds will be needed when it makes a formal request to the EU.
Bank of Spain Deputy Governor Fernando Restoy said: “The auditors from the consultancy Oliver Wyman say – for the worst case scenario – we’d need capital of between 51 billion and 62 billion euros. Consultants Roland Berger, meanwhile, have a lower range of around 51.8 billion euros.”
The amounts are higher than the 40 billion that the International Monetary Fund calculated earlier this month, but less than the 90 to 100 billion that the risk assessment agency Fitch estimated.
The Spanish central bank stressed the country’s three major banks do not need further capital in this crisis scenario.
It said the problems were confined to a limited number of weaker lenders and the government has already started to deal with them.
Spain’s government hopes the independent audit will remove the uncertainty which has been forcing up the cost of its borrowing.
The amount of interest that the Spanish government is having to pay to borrow in the medium term has soared again to the highest since the launch of the euro.
At its latest debt auction on Thursday, Madrid was able to raise all the money it needed from investors but fears about the Spanish bank’s black hole of debt meant it is paying a hefty price to find buyers for its government bonds.
Analyst Javier Barnuevo of CVG said: “It is a good thing when we think short term because our financial needs seem to be covered. But the interest rate is high and that means that it won’t be sustainable long term.”