July 27, 2011 / 1:27 PM / 7 years ago

Spain's Bankia to focus on cutting bad debt

MADRID (Reuters) - Spanish savings bank Bankia aims to prioritise tackling bad debts after its maiden results as a listed entity showed a rise in non-performing loans since December.

The proportion of non-performing loans to total loans rose to 6.35 percent from 5.52 percent in the six months, some way worse than the 4.81 percent recorded for domestic loans by bigger local rival Santander, which also posted results on Wednesday.

Spain’s savings banks’ asset quality has suffered a greater deterioration than their commercial banking peers due to their bigger exposure to the sickly property sector, as unemployment rises and debt payments swell with interest rates.

Bankia, the biggest of Spain’s savings banks by assets, has more exposure to property than its rivals as 45 percent of its loan book is made up of retail mortgages, while another 16.5 percent is corporate real estate debt.

Chief Executive Officer Francisco Verdu said the group would set up a special unit to stop the number of bad debtors rising, actively managing customers thought likely to fall short on payments and speeding up the auction process on bad debtors.

“Bad loans for the sector as a whole will continue to rise into the first quarter of 2012,” Verdu told a news conference.

Bankia reported net profit of 205 million euros ($298 million). The bank, formed from the merger of seven regional lenders, including giant Caja Madrid, did not provide year-ago figures, but Caja Madrid alone made a profit of 195 million euros this time last year.

Bankia’s integration plan, focused on cost cutting through branch closures and staff lay-offs, is ahead of the 2012 target, and synergies should be reflected in the accounts from the second half of this year, Verdu said.

Strict cost control will remain a priority for the bank, and it will embark on another review of its branch network and staffing levels early in 2012.

Bankia shares were down 1 pct at 3.65 euros at 1251 GMT, outperforming large falls at bigger rivals BBVA and Santander, which were hit by a spillover from rising Spanish government debt yields and the euro zone sovereign debt crisis.

Bankia also announced in a presentation that it would issue 14.8 billion euros in covered bonds to refinance debt maturing 2011-2013.

OVERSEAS FUNDS INTEREST

Bankia raised 3.1 billion euros ($4.4 billion) last week when it priced its initial public offering (IPO) at 3.75 euros a share, slashing the price at the last minute to attract anxious investors deterred by the euro zone’s debt woes.

Bankia drove through an IPO despite adverse markets as part of government-driven measures to increase solvency and reassure global markets about the stability of Spain’s financial system.

A substantial part of Bankia’s share offer was bought up by retail investors and Spanish institutions, but since its market debut some overseas investment funds have bought in, including one U.S. fund and several European funds, Verdu said.

Some of these investors have shares in other Spanish banks.

The savings bank passed European Union-wide stress tests earlier this month, but only by including proceeds from the share offerings in advance of their conclusion.

Five of the eight banks that failed European stress tests were Spanish.

Core capital at Bankia rose to 9.9 percent after its initial public offering from 8 percent at the end of June.

Additional reporting and writing by Elisabeth O'Leary; Editing by Will Waterman

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