Tuesday, September 08, 2009

Banks In Spain. Anyone Want A Conspiracy Theory?

One of the things that you learn when you have lived in Spain for a time is that things are not what they seem in many cases. This may well be why "Spain is Different" still holds true. What on the surface can seem a totally normal thing has millions of tentacles and subplots underneath. Today's question is what are the banks doing? Now Spanish banks look safe and have not had the huge upheavals of the States or The UK. However there is something going on and I would like to make a feww suppositions here as everybody loves a good conspiracy theory.

In the last two months I have had four property deals disappear from under my nose because the banks are turning everybody down for mortgages. And I mean everybody, great credit history, huge incomes, good percentage of loan to value on the property and having money to put down. One of the few deals to have gone through recently meant the bank getting in 143k for lending 90K which if you want to know more about email me, it is quite extraordinary.

So if you want a buy a property in Spain you cannot currently get a mortgage, or can you. All over the country banks are advertising 80-100% deals on mortgages. To qualify you need to be a resident and able to prove you can pay and little else. Non residents, ie foreginers coming over to buy can get up to 80% too and in some cases some banks will go up to 100% but only on one condition:

The purchased property must be one owned by the banks.

Now consider a couple of other factors. Bank owned properties are repossessions and they had a debt associated with them. That debt will eventually become a liability on the bank's balance sheets so they are desperate to get rid of the properties as they are reluctant estate agents. However, they are currently the biggest estate agents in Spain without even a close second. (Not even me I hear you ask)

Most chains of Estate Agencies have gone bust or reduced drastically their network of offices. Most developers have gone bust or sidetracked their businesses elsewhere. This leaves the banks holding the very dirty baby they created by making access to credit much too easy in the past.

If those properties they own pass to the liability side of the balance sheet then their books are not going to look good with an estimated 8-10% non performing loan portfolio looking sure for the end of the year. So what do they do? They stop lending for anyone except people buying the properties they hold. Their stock thus gets reduced and the new debtor will pay back the bank a lot of money over the next 25-30 years, or even 40 to make places affordable, in the long run. Balance sheet looks better magically.


  1. That is a very interesting and viable conspiracy theory.

    Everything goes in ebbs and flos. I remember over a decade ago (how is that possible for such a young whipper snapper like me) that the banks were uber cautious about loaning. The tide will turn again.

    Remember, the banks have had their credit withdrawn also from the Banco de Espana.

    But it is interesting that they are pushing their own properties.

    Will be interesting to see what mortgage brokers have to say about your theory

  2. Banks have no cash. Therefore they cannot raise it at decent rates to loan it. Thus they only loan for their own repossessed properties as there is no physical cash involved. It is a simple paperwork thing.

  3. That's a good point. Couldn't have put it better myself ;-)
    The Banco de España has effectively had their credit rating withdrawn too because of the current account deficit in Spain

  4. Interesting, thanks Graham.


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