Spain’s banks to face further pressure in 2011
MADRID: Spain's banks, burdened this year by rising defaults and flagging credit demand, will face further pressure in 2011 as funding costs eat away at the returns on their stock of home loans.
The squeeze may be worst for lenders with the greatest proportion of mortgages because they have less scope to pass on the financing costs to customers, said Claire Kane, an analyst at MF Global in London. Ibercaja, a Zaragozabased savings bank, has 53 percent of its loans in mortgages, while Bankinter SA, based in Madrid, has 46 percent, Bank of Spain data show.
"The amount of mortgages a bank has gives an indication of who is going to face the most pressure on revenues," said Daragh Quinn, an analyst at Nomura International in Madrid. "The more retail mortgages you have, the more difficult it will be to re-price your loan book." Concern that Spain won't be able to reduce the euro region's third-highest budget deficit and avoid a European Union bailout has driven up financing costs for the banks. The nation's Aa1 credit rating may be lowered, Moody's Investors Service said on Dec. 15, blaming banking losses, regional public deficits and mounting borrowing costs as the government and lenders seek to refinance 260 billion euros ($345 billion) of debt. The cost to insure the senior debt of Bankinter for five years has almost doubled since April, to about 330 basis points, data compiled by Bloomberg show. That's almost twice the cost of insuring the debt of Belgium's KBC Groep NV, which has the same A1 rating from Moody's as Bankinter. -PB News