Property for sale in Spain – bank reforms to ease real estate debt

Property for sale in Spain – bank reforms to ease real estate debt

The Spanish government has approved bank reforms to inject credit into the economy and restore investor confidence.

Executives of banks receiving funds from the bank restructuring fund, may not make more than 600,000 euros per year, Economy Minister Luis de Guindos announced on Friday 3rd February.Banks that have received Bank of Spain intervention, their executives may only earn half of that amount.

The financial reform requires banks to set aside provisions to cover toxic real estate assets.The assets were left over from the previous housing boom, which bust during the credit meltdown.

Banks have to meet the provisions by the end of 2012. But those that decide on merging by May 30 have one more year to do so, the government is wanting to encourage mergers.

Merging banks have access to loans from the FROB, but they must give more credit to businesses and families. An extra 6 billion euros will be added to the FROB by selling debt.

The government believes this will make many banks reduce the value of their property holdings, which would cut prices for home buyers.

Economy Minister De Guindos has described the financial reform – which followed two similarly oriented ones by the previous Socialist government – as ‘the most intense restructuring in the European Union.’

The reform is almost certain to be approved by parliament, where Prime Minister Rajoy’s People’s Party has an absolute majority.

The government, has also announced spending cuts and plans a labour market reform to boost growth and to cut the budget deficit.

This should help unemployment and get a stagnant housing market moving again. If credit is available to families and businesses again, then properties will be bought by Spanish and foreigners alike.

Businesses also need credit to diversify and expand in this ever demanding marketplace. I hope that every country takes not of this including the UK, who are arguing over bonuses and say that they cannot reduce salaries of top bankers in case they walk. Look at Iceland who allowed all of their banks to fold, they are a country that has one of the top growth rates and a very low unemployment rate.

Now Spain are doing what everyone else should be doing and this government should be commended for it. We will see if the reforms help Spanish banks and the country as a whole in the eyes of the credit agencies in the coming months.