Spanish banking stocks saw some relief early on Tuesday after heavy continued losses on Monday on concern about the banks' property losses.
Late on Monday, the Institute of International Finance(IIF) warned that under a worst-case scenario, Spain´s bank losses could hit 260 billion euros ($331.7 billion), with the majority of the losses stemming from commercial real estate loans.
In its report, the IIF highlighted that Spanish house prices have further to fall, since they haven´t declined as much as in Ireland and in the U.S. The unemployment rate of 24 percent, which is the euro zone´s highest, only adds to an acceleration of loan defaults, the IIF says.
Given that Spanish banks´ provisions for loan losses are only estimated at around 190 billion euros, the shortfall in provisions could be up 50—60 billion euros ($63.7 billion—$76.5 billion), requiring government support for the smaller institutions which don´t have sufficient own resources.
The IIF says: ”The three largest banks should meet any shortfalls from own resources, thus residual capital requirements in an adverse scenario may be limited to 50—60 billion euros, around 5 percent of GDP.”
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