Saving up for a rainy day

8 October 2010 By Fiona Maharg-Bravo

Regulators deserve praise for forcing lenders to set aside extra provisions in the boom years. But the buffers are shrinking rapidly while bad loans are still rising. Smaller lenders will need more capital. And rebuilding the reserves will be a drag on earnings for years to come.

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Spanish banks and savings banks held 18.8 billion euros in anticyclical, or generic, reserves as of June 30, according to data from the Bank of Spain.

In a speech on Sept. 24, former Bank of Spain Governor Jaime Caruana said the decision to implement anticyclical provisioning in 2000 was not an easy call.

"Banks were not pleased to report reduced profits as they built up their statistical loan loss provisions," he said. "Provisioning that cost around 20 percent of operating profits and that was not required of international peers did not go down easily."

Spanish lenders will consume most of their generic reserves between 2010 and 2011, according to calculations by Barclays Capital.

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