Rodrigo Rato, the chairman of lender Bankia, said Thursday the Spanish banking sector still has too much capacity despite widespread consolidation in the past few years.
“We’re talking about not only tie-ups but also that the resulting merged institutions in the sum of their parts be smaller than previously,” the former Spanish economy minister and managing director of the IMF said.
Bankia itself is the product of the merger of seven savings banks, including Caja Madrid. Rato said that since the merger Bankia has closed 817 offices and reduced its workforce by 3,833. He said that represented 25 percent of the reduction in size of the entire Spanish banking system. “We’re in the process of slimming down the system, and focusing on efficiency, profitability and synergies,” Rato said.
At the Bank of Spain’s insistence, the number of players in the savings bank sector has been reduced from 45 to 13 as a result of mergers and is expected to fall further as a result of further tie-ups.
The government has also obliged the country’s lenders to make further provisions of 53 billion euros to cover potential losses from their real estate assets, a process the administration hopes will push weaker players into the arms of stronger ones.
The property sector has been in a profound slump since 2008 and remains a source of concern for the country’s banks. Rato said the banking sector had made total provisions to cover its exposure to the real estate sector of 166 billion euros, equivalent to 15 percent of Spain’s GDP. Prices had fallen 43 percent in Ireland and 40 percent in the United States after property bubbles burst in the two countries, but only 27 percent in Spain.
He said coverage for potential losses on land held by banks was 87 percent, 82 percent for houses being built and 56 percent for finished homes.
Rato said the key to getting the property market moving again was to run down the stock of unsold new homes, which experts in the sector estimate at around one million units.