Is The Spanish Banking System Really Healthy; Is It Sufficiently Capitalised?

Spanish banking healthSpanish bad bank Sareb

How solid a banking system is is such a cloudy issue that it’s difficult to make a valuation without doubts or ambiguities. For example, in Italy it’s vox populi that the banking sector is very weak, but what about in Spain? Is it good news that Santander is going to pay a dividend for the first time in years, or is it a kind of exhibitionism superior to its real strength?

I read an article by Juan Laborda about SAREB or, in other words, the “bad bank”, the public entity which took charge of the doubtful assets held by the Spanish banks on the day when everything collapsed.

According to Laborda, the story of SAREB is one of failure. It did not meet the expectations generated, that it would provide an annual yield of 14%. And the reason: because of pressures from very spurious interests, it paid over the market price for these doubtful assets. So it was always going to be difficult to sell them to the private sector at a profit. It’s we Spaniards who will pay the difference between the over the top purchase price and the sale price – if in fact they are ever sold. Yet another high-handed act.

What should have been done is to pay the banks the market price at the time, so they had to deal with the losses, which should then have led to recapitalisation.
But a more lenient solution was preferred, allowing creditors to get off scot-free, as well as some assets like loans to families, SMEs and public administrations.

It’s the Swedish model, but passed through the Japanese model’s corrupting sieve. I suppose this has to do with the fact that some loans to families and companies are still negative – in other words, repayments are higher than new loans – although certainly less negative than three years ago. But the fact is that everything is still very cloudy. For example, future tax discounts estimated today are considered as part of a bank’s capital. This is so outrageous that if there is another hard time the holes which you can’t see at the moment will get bigger.

Santander has announced it will pay a dividend this year for the first time in years, which doesn’t make me put my hand in the fire for all its declared accounts. (As a matter of fact, had we not agreed that the problem was just to do with the savings banks?). With the banks anxious to get ahead of their peers, I suspect that these dividends will also be charged to future hypothetical capital. How much will the solid capital really amount to, will it reach the legal requirement, and will the stress tests carried out really be accurate? Who knows.

About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://