REPORT: There's Another €50 Billion Hole In The Spanish Banking System Due To Bad Real Estate Loans


Photo: Jose Maria Miñarro Vivancos on flickr

Stress tests on Spain’s banks are being expanded, and the country is likely to face more failures under the new rules, according to El Confidencial.The paper reports that the country’s banks may be hiding as much as €50 billion in bad debts, per a document obtained from Boston Consulting Group.

Essentially, the Bank of Spain had hoped stress test rules about real estate exposures would be weaker. The European authorities, however, have not accepted the Bank of Spain’s version of the rules. Banks will have to admit larger exposures to mortgage debt.

As such, when the tests are conducted, it is likely more banks will fail due to bad real estate debt on their balance sheets. The positive from this is that the market will take the tests more seriously, because failures indicate that the tests are tougher than the last round in 2010, which were largely scoffed at.

But it could be bad news for the Spanish sovereign, which will now have to commit more capital to its banking sector, to convince markets it is safe. Whether or not they will need the rumoured €50 billion or more is, at the moment, unknown.

Don’t miss: 9 reasons Spain is no PIG >

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.