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Spain set to force banks to raise risk provisions

Spain’s government on Friday will force banks to boost their financial cushion against risky property assets, an official said, as Madrid struggled to soothe international worries.

“There will be new provisions” against property-related assets demanded in a package of banking sector measures to be issued on Friday, an economy ministry spokeswoman said Wednesday, without giving further details.

The extra money set aside against risky loans and seized real estate linked to the distressed property sector could amount to €35 billion ($45 billion), said business daily Cinco Dias. That figure comes in addition to the €53.8 billion in provisions already demanded in a reform announced in February.

The banking sector, overextended in a property boom that collapsed in 2008, is a major concern for international investors who fear the full losses on those assets have yet to be recognised.

Reports of the latest measures intensified the jitters on Wednesday, with the Madrid stock market plunging 3.03 per cent in midday trading, dragged down by financial shares.

Santander, plunged 5.10 percent, Bankia plunged 6.10 per cent and BBVA fell by 4.73 per cent.In an attempt to soothe markets, the government has already said it will approve on Friday a new reform aimed at enabling banks to separate problem loans from their balance sheets.