Just when markets were focused on the risks of a Greek default and the possibility of contagion to other countries, Spain’s central bank reported this week that things were getting worse for that country’s banks — but not because they held a lot of Greek debt or bonds issued by other troubled European economies.
The problem, instead, is the same old one. With Spain’s economy weak and home prices falling, bad loans are growing. And the central bank thinks things are getting worse.
In a surprisingly frank presentation to investors in London on Tuesday, José María Roldán, the Bank of Spain’s director general of banking regulation, said that Spanish land prices had fallen about 30 percent from the 2007 peak, adjusted for inflation, and that home prices were off about 22 percent. “In both cases, we expect further corrections in the years to come,” he said. For land prices, he said, the bank’s “baseline scenario” was that prices would fall to little more than half of the peak level. The “adverse scenario” indicated that the decline could be significantly worse.
