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Spanish Banks: Hard Landing
01 April 2011 @ 10:57

Land has gone from being the safest of bets to the riskiest

HOW bad Europe’s debt crisis gets depends largely on Spain, which would be much harder to rescue than smaller economies like Greece. How bad things get in Spain depends largely on the banks, which are already trying to find an additional €15 billion ($21.1 billion) to meet new capital requirements imposed by the government. And how bad things get for Spanish banks depends largely on the country’s unfolding property bust. Nestling at the heart of these worries is land.

Land was the hot commodity in the decade-long Spanish property boom. Local councils allowed ever more plots to be zoned for urban development, issuing building permits with abandon and receiving fees or a percentage of the land. The scale of the boom is only now apparent, following requests from the Bank of Spain for details of lenders’ exposures.

Almost a quarter of the banks’€320 billion in loans to developers is backed by land, according to estimates by Goldman Sachs. Land also makes up nearly half of the €70 billion of real-estate assets now owned by the banks and savings banks. Add it all up, and Spanish institutions have exposure to more than €100 billion of empty plots, either as lender or owner. “The main issue for the banks isn’t excess housing, it’s land,” says Carlos Ferrer-Bonsoms of Jones Lang LaSalle, a consultancy.

Read the rest of the article at The Economist

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