The real estate market continues to threaten Madrid and its banks. The amount of non-performing loans reached a record high in February143,815 billion euros rising to 8,15% of the total. In January, the amount of non-performing mortgages, which represent a large part of the total, had risen to 7,91%, the highest level since 1994 and significantly higher than in 2007 (in the pre-crisis year it stood at 1%). This was announced today by the Bank of Spain.
Credit institution defaults are becoming more and more frequent and the disbursement of funds is steadily declining, while the unemployment at 24% it corrodes the quality of the loans issued during the economic boom and reduces the willingness of banks to grant new ones. The climate of insecurity and strong doubts about the balance sheets of institutions are damaging share prices and drive up government refinancing costs.
According to analysts, the picture could get even worse: “Our main concern,” says Andrew Bosomworth, portfolio manager at Pacific Investment Management CO, “is the extent to which exposure will risk flowing into central government coffers. Non-performing mortgages will increase when the unemployment rate and the general state of the economy are taken into account".
In this context, according to experts, house prices could fall by another 20%, triggering an almost unstoppable spiral of financial crashes.
Rajoy is trying everything to convince investors that Spain's finances are under control, after refusing to meet deficit targets set by the European Commission. The premier has also imposed on the banks to recognize losses on home loans and participate in a plan recapitalization of 54 billion.
It's not just real estate mortgages that are of concern: the repayment of around 60 billion in loans directly linked to the sector is also doubtful. Furthermore, the amount of non-performing loans granted to industry, excluding the real estate sector, grew by 5,4% from 1% in 2007, according to data from the Central Bank.
Some analysts are starting to suggest using the EFSF to recapitalize banks. A risky plan: It could signal to investors that the country has lost market access, causing more problems than it would solve.
