Banker insists Spain's problems not nearly as bad as Ireland's

JOSE IGNACIO GOIRIGOLZARRI is quite emphatic about it – Spain’s banking problems are very different from Ireland’s; in fact he maintains that they are not nearly as bad.

Both countries experienced a property bubble driven by cheap and easy access to funding, a large proportion of which came from banks in the core European countries, and a voracious appetite to take on risk.

In Spain’s case, the savings banks owned by regional governments fuelled spectacular lending splurges where little attention was paid to the concentration of risk in certain areas, particularly along the tourist regions of the Mediterranean coast.

While the two countries have struggled to deal with bad real estate debts, Spain doesn’t have the same level of development and commercial property loans as Ireland, said Goirigolzarri, speaking ahead of the results of independent stress tests of the Spanish banks.

“There are many similarities but there are many things which are completely different. There was a real estate bubble in both countries, but in Ireland you are talking about wholesale real estate; here you are talking about retail real estate,” he said.

“Bankia has a problem not with wholesale real estate, but with flats [apartments] and mortgages distributed by our branch network. Here you don’t have big wholesale deals. The situation is completely different and the solution is very different.

Bankia has about 46,000 foreclosed apartments on its books, which must be resolved by the country’s planned bad bank, the details of which have yet to be announced.

The view of the Spanish authorities is that there should not be a clear divide between the banks and the country’s bad bank but a close relationship as the lenders are best placed to “commercialise” those bad assets and sell them as the banks still hold the purse-strings.

There are roughly €1.8 trillion of Spanish loans in the country’s banking system, according to Daragh Quinn, an analyst at Nomura who is originally from Dublin but has been living in Madrid for 12 years. About €690 billion of these loans relate to mortgages and a further €300 billion to commercial property loans, including development loans.

The bulk of mortgages are prime loans, given that buy-to-let lending was rare in the Spanish market, said Quinn. As a result, the level of non-performing mortgages has remained at around 3.5 per cent – about a quarter of the level in Ireland.

While Ireland struggled to deal with an exposure of about €100 billion of commercial property loans with an economic output of €150 billion, Spain’s €1 trillion economy has a greater capacity to deal with the most toxic of the country’s loans, the €300 billion of commercial property loans.