Fitch Ratings on Wednesday called Spain's new real-estate asset rules a big but necessary step toward extracting the country from a banking crisis that has continued to weigh down the broader economy.
Under Spain's stiffer rules on real estate, banks will need to comply with harsher regulatory capital requirements and meet the European Banking Authority's 9% core capital requirement.
The entire banking sector's total exposure to the real-estate sector at the end of June reached EUR323 million, of which EUR175 million was potentially problematic, according to Bank of Spain data. Soured real estate assets have plagued Spanish banks and held back the nation's economic recovery.
The country's latest move will force banks to build up coverage levels relatively quickly amid an economic slump that has hurt their overall operating performance.
Such rules are aimed at reducing risk from the banks' real-estate exposures through income statement provisions and capital buffers. The move is still needed to stimulate credit and promote economic growth, the ratings service said.
Fitch said Spain's larger financial institutions should be able to meet the new requirements without any adverse impact on their ratings, given the one-off nature of the change this year.
Smaller banks, particularly those relying on capital injections from the state, will find it harder to comply with the rules in just one year, given their low revenue generation and tighter capital.
Stronger institutions that merge with weaker institutions will also face downward rating pressure due to the potential weakening of their risk profile, additional provisioning and capital needs and execution risks, Fitch added.
Fitch said it expects larger players to report lower earnings due to the change, while some smaller domestic banks could report losses in 2012 unless they register capital gains.
