Spanish Crisis Exacerbated by Property Debt
Wednesday, May 26, 2010 @ 11:40 AM
The main culprit behind soaring Spanish debt levels is the over-leveraged property developers, not public spending, Arturo De Frias Marques, research analyst at Evolution Securities, told CNBC Tuesday.
“The developers are the main reason for private sector debt inflation,” Marques said. Private sector debt currently stands at 171 percent debt of gross domestic product (GDP), compared with the government debt ratio 53 percent.
Without the developers, the Spanish private sector debt would be only 10 percent higher than in Germany, and well below the UK, US and France, he argued.
Lending to developers in Spain accounts for 29 percent of Spain’s GDP, or 320 billion euros, “which is a very big number,” according to Marques.
Financially vulnerable Spanish regional banks -- those most exposed to weakness in Spain's property market -- are starting to merge operations to improve solvency, and the government has given cajas -- as Spain's savings banks are known -- a June 30 deadline to consolidate.
“It is serious. It will take years to be fixed," Marques said. "I don’t think it’s going to end up in an ‘out-of-control’ situation, however. Particularly because the major banks are quite solid.”
Marques emphasized that Spain needs structural reforms, which will mean higher unemployment and lower growth.
“Clearly we have a couple of tough years, but it won’t end up in disaster," he said. "The steps we’re seeing are the steps that had to be taken for many years.”
Meanwhile, the balance sheets of Santander and BBVA -- Spain’s two largest banks -- are robust relative to their regional competitors, due to the banks’ “diversification and lending policy,” according to Marques.
Read more at CNBC