FINANCIAL TURMOIL

Spain appoints two independent consultants to evaluate banks’ loan quality

Roland Berger of Germany and US firm Oliver Wyman get the nod for stress tests

De Guindos dismisses Hollande's intervention idea

The Economy Ministry on Monday said the Bank of Spain had selected Roland Berger of Germany and Oliver Wyman of the United States to provide independent valuation of Spanish banks’ assets.

Economy Ministry sources said the aim of seeking external consultants is to “increase transparency and definitively dispel doubts about the valuation of bank assets in Spain.”

Roland Berger and Oliver Wyman will make an overall assessment of the banks’ balance sheets and their ability to resist adverse scenarios. Thereafter, the Economy Ministry wants to hire three advisors to carry out “fieldwork” to gauge in greater detail the extent to which the quality of the bank’s property assets has deteriorated. The results of this will be known in the in the next few months.

Oliver Wyman classified Anglo Irish Bank as the best in the world in 2006. Two years later it was nationalized.

Probably the French president knows more about the banks in Spain than the French banks”

“If the independent firms offer an evaluation of the loans similar to those given by the banks, the market is not going to believe them,” Legal & General Investment Management analyst Georg Grodzki said.

Economy Minister Luis De Guindos on Monday ruled out any further serious deterioration in home loan defaults despite rising unemployment, which has moved from eight percent prior to the breaking of the crisis in 2008 to over 24 percent at the end of March.

The performing loan ratio for mortgages currently stands at 2.8 percent, compared with 21 percent for credit to the real estate sector. The banking system’s loan portfolio is currently around 1.76 trillion euros, of which 656 billion is in the form of mortgages to individual homeowners and around 310 billion to property developers. In a decree approved earlier this month, the government increased provisions for loans to developers to up 45 percent of the value of the credit.

De Guindos reiterated on Monday that Spain does not need, as has been suggested by French President François Hollande, to tap the European Financial Stability Facility to sort out its banking system. “Probably the French president knows more about the banks in Spain than the French banks,” the minister said. “Spanish banks do not require a bailout from the European funds.”

The leader of the main opposition Socialist Party, Alfredo Pérez Rubalcaba, on Monday also ruled out the need for a bailout to resolve their problems. “We have the capacity to do it alone, and I believe we should do it on our own.”

The minister insisted the decision to appoint external assessors to gauge the extent of the Spanish banking system’s problems was not a slap in the face to the Bank of Spain. Current governor, Miguel Ángel Fernández Ordóñez, who is due to leave his post shortly, has come in for criticism for his handling of the events surrounding the merger of seven savings banks to form Bankia and its subsequent nationalization earlier this month.

“Institutions are more important than people and the Bank of Spain as an institution is of the maximum solvency and credibility,” De Guindos said.

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