Spain is preparing a rescue plan for Bankia, the country’s third largest bank by assets. The government will most likely use state funds worth several billion euros for the credit institution affected by problems, informs the Financial Times. In a change of approach, the Spanish government confirmed that it prepares an intervention, after insisting for some time that no additional funds will be required for the country’s banking sector. Shortly after this announcement, the CEO of the Bank, Rodrigo Rato, stepped down from leadership of the credit institution, founded in 2010 by the merger of seven savings banks.
Prime Minister of Spain, Mariano Rajoy, said in a radio interview that the government will consider state funding for the banking sector. “If it is necessary to reactivate the credit in order to save the banking system, I would not preclude the injection of public funds, as did the other European countries”, he said, quoted by Financial Times. Spanish real estate market crash led, during the crisis, to the growth of nonperforming loans as a part of the whole portfolio, the highest in the last 18 years. Banks have come to operate extensive portfolios of properties taken from the borrowers, and the process of lending to the economy has significantly decreased.
The government can use the FROB restructuring fund for banks, supported by the government to introduce additional capital to Bankia and is considering using bonds which offer the option of converting them into shares, said a ministerial source. The official did not say how much money the bank would need, but the press in Spain indicated that Bankia could receive additional capital of 7.10 billion euros. However, bailing out the bank after replacing the top executives might not be enough for the investors, as the Spanish banking system was shaken up by real estate crash and bad loans. Bankia representatives declined to comment.
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