Spain vows to provide Bankia capital needs
Spain will provide any capital needed by troubled lender Bankia as it battles to repair a balance sheet riddled with risky property-related assets, the government promised Wednesday.
After swooping in this month to take control of Bankia and its parent BFA, the state would now provide the capital required for a clean-up, Economy Minister Luis de Guindos told parliament.
Bankia and BFA will appoint new, smaller boards of recognised professionals, he said.
The new directors must then draw up a "viability plan" specifying the capital required to fully meet tougher new banking rules introduced by government reforms in February and May, De Guindos said.
The new requirements must include 7.1 billion euros ($9.9 billion) to be set aside by Bankia in case property-related loans and real estate holdings turn sour, he said.
The bank also must boost its capital buffers by another 1.9 billion euros, he said.
Bankia's viability plan would have to allow its 2011 accounts to be signed off by its auditors without reservations, the minister said, and must also be approved by the Bank of Spain.
"The government will fully support the capital needs that result from this plan," De Guindos said.
The state-backed Fund for Orderly Bank Restructuring (FROB) would cover any increases in capital that become necessary in the parent BFA and then in its 45-percent held Bankia.
The FROB would end up with a stake providing it with "clear control" of BFA, he added.
De Guindos warned against assuming that Bankia's woes were a symptom of wider problems.
"I don't want to end without insisting on the specific nature of the BFA-Bankia group and the imprudence of extrapolating from this situation to the rest of the Spanish financial system," he said.
An International Monetary Fund report had estimated that 70 percent of the financial system could resist a situation of heightened financial stress, De Guindos said.
Bankia represented the largest portion of the remaining 30 percent, he added.
De Guindos stressed that he was confident in Bankia's future.
"I want to say clearly that, once the current difficulties are overcome, it will be a viable and attractive project with enormous growth potential," the minister said.
Prime Minister Mariano Rajoy's conservative government this month instructed Spain's banks to set aside an extra 30 billion euros in 2012 in case property-related loans go bad.
That was on top of 53.8 billion euros in provisions required under reforms enacted in February.
As part of the latest reform, the government has named independent auditors to verify banks' balance sheets, which were estimated by the Bank of Spain to hold 184 billion euros in problematic loans at the end of 2011, 60 percent of the total property portfolio.
© 2012 AFP