Credit rating agency Moody's put a €50 billion price tag today on the recapitalising of Spanish banks hit by the property market collapse. And it said the level of banks' exposure to the property sector damages their creditworthiness.
The Moody's Investors Service estimate is far higher than the €20 billion maximum that the government says would be required to rebuild banking balance sheets.
Spain's government this month approved stricter rules on the amount of rock-solid core capital that banks must hold on their balance sheets so as to shore up confidence in the battered economy.
Spain's savings banks are weighed down by loans that turned sour after the collapse of a housing bubble in 2008 and are at the heart of fears the country could need an international rescue.
'With the Spanish government's recently imposed new capital requirements for Spanish credit institutions, the capital shortfall for Spanish banks, based on our own estimate of losses, could add up to €50 billion as per our base scenario, up from the €17 billion euros that we calculated at year-end 2010 according to previous capital standards,' Moody's said in a report.
'Our €50 billion capital shortfall estimate is clearly above the €20 billion that the Spanish government estimates as the maximum amount necessary to recapitalise Spanish banks,' it added.
Moody's welcomed the Bank of Spain's decision to publish data last week showing problem loans in the banking sector as a positive step to regain market confidence. But it said the €100 billion of problem loans revealed was 'credit negative'.
'We think that confidence in Spain's savings banks will only be completely restored once the problematic exposures are translated into losses and the adequacy of bank capital is robustly tested,' Moody's said.
