Spain’s government has said it would be prepared to provide emergency credit to some of the country’s small savings banks and property companies.
A government spokesman said there was money available to banks facing liquidity problems following the global credit crisis and the slowdown in the property market.
However, he said there was no immediate sign the assistance was needed. According to the government, Spanish banks so far have faced limited fallout from the credit crisis due to their focus on high-street rather than investment banking.
But if some of the smaller provincial savings banks were to have a short-term cash flow problem, the Official Credit Institute, the ICO, could step in and provide loans at below market rates.
Other companies, such as property firms, could also receive loans, although the ICO has yet to make such loans.
The Spanish government has around €7 billion immediately available to provide a stimulus to prevent an abrupt slowdown in what has been Europe’s fastest growing economy.
The government faces a general election on March 9 and is keen to keep the economy on an even keel between now and then. But if one of the small savings banks ran into trouble, the large banks could be reluctant to lend them money because of the worldwide liquidity crisis, so the government would step in as a last resort.
The government spokesman pointed out that the cajas are not publicly traded companies and so have no impact on the stock market.
“Cajas are not publicly traded and are not going to go bankrupt,” he said. “In the worst case scenario there are a thousand of ways to avoid it.”
According to the Bank of Spain, leading banks have managed to raise funds on high-quality mortgages and diversified away from the property market, leaving them well placed in the present market. It is the small, privately held savings banks, particularly on Spain’s Mediterranean coast, that are likely to suffer the most from the downturn, according to a report from BNP Paribas.
The bulk of the small cajas’ loans are in mortgages and credit to property developers, which could leave them vulnerable if the credit squeeze continues.
Added to that is the number of people defaulting on their loans, which is expected to double this year to around two per cent as families are faced with higher interest rates and property companies struggle to make payments on outstanding loans.
A government spokesman said, as well as loans to banks and companies, the government could soon announce small-scale plans to boost the economy and counter the effect of the global slowdown.