Story highlights
Spain's state bank bailout fund will transfer €4.5bn into Bankia to boost the lender's capital
Bankia announced on Friday night a €4.4bn loss in the first-half results for 2012
Bankia, a merger of seven savings banks, was forced to request a €19.5bn state rescue
Spain’s state bank bailout fund will transfer €4.5bn into Bankia to boost the nationalised lender’s capital levels to more than regulatory minimums after it suffered heavy losses in the first half.
Monday night’s announcement of the transfer formalises a decision made on Friday to provide Bankia with a bridging loan before European rescue money arrives in November.
The board of the Frob, Spain’s state bank rescue fund, met on Monday to decide the amount that would be provided to Bankia. Two officials said it would be between €4bn and €5bn to raise the lender’s core capital level back above 8 per cent, as specified by the Bank of Spain.
Bankia announced on Friday night a €4.4bn loss in the first half after being forced to make provisions of €2.7bn against bad property loans. It saw the ratio of bad loans compared to its total lending rise from 7.6 per cent at the end of last year to 11 per cent by the end of June.
Bankia, a merger of seven savings banks listed on the Madrid stock market in July 2011, was forced to request a €19.5bn state rescue in May, with the government removing Rodrigo Rato, the former International Monetary Fund managing director who was the bank’s founding chairman.
Officials said Bankia would repay the money back to the Frob once the final amount of the European rescue money to recapitalise Spanish banks, agreed at up to €100bn, was delivered – by November at the latest.
Spain will announce the amount of money to be injected into Bankia and other lenders after an audit of the country’s financial system is completed by the consultancy Oliver Wyman by the end of September.
Luis de Guindos, Spanish finance minister, said in a domestic radio interview on Monday that the country would likely not need to use all of the €100bn in aid for Spain’s banks agreed with Brussels in July.
Spanish banks have incurred large losses as they have raised provisions to cover bad loans made during the country’s decade-long property bubble. There is a total of about €180bn in problematic property loans present across the financial sector as a whole.
Madrid on Friday announced its third banking sector reform law in six months, laying down the foundations for a so-called “bad bank”, where lenders will be able to transfer distressed property assets from their own balance sheets.
