In 2008, Spanish banks took on a large amount of homeowners’ debt in exchange for assets, or homes. While this move helped avert a massive reduction on debt, it left Spanish banks with far more homes as assets instead of loans.
The move was made with the intention that the banks would eventually be able to sell off these real-estate assets as the housing market began to rebound. The only problem is that the rebound they were hoping for hasn’t happened. In fact, Spain’s housing market has steadily worsened since the recession.
Now, the banks have come under the pressure of the Bank of Spain, the country’s main regulator, to increase loan loss provisions against their property assets in the coming months and to start to make further mark downs on their real estate assets that are now worth about €59.7 billion (US $73.8 billion).
As many of the country’s banks scramble to unload their real estate assets, they are offering consumers deals that are suspiciously similar to the ones that plunged the global economy into recession two years ago.
Not only are the banks offering consumers 100-per-cent loans, but they’re also offering low initial mortgage rates for buyers or payment deferrals for up to three years.
Ironically, Spanish banks seem more than ready to use these tactics, which may only forestall their problems for a few years as they continue to acquire even more high-risk assets.