Tag Archives: Banks

Finance, News/Finance

Spanish Banks to Transfer Toxic Debts to New ‘Bad Bank’

Mariano Rajoy´s government on Friday approved by decree a fundamental change to the banking sector with the creation of a ´bad bank´ to take ownership of toxic debts held by Spain´s mortgage banks, notably Bankia, Santander, BBVA, and the various cajas with high debt to assets ratios.

Responding to demands from the ECB and other Eurozone members to clean up Spain´s banking industry, the move is expected to satisfy Eurozone partners and start the process of Spain receiving upto 100 billion Euros of banking sector bailout funds to stabilise the economy.

Speaking after the announcement Soraya Saenz de Santamaria, the deputy Prime Minister, said that this additional decree and the creation of the ´bad bank´was needed to “get credit flowing in the economy” again.

Banks with distressed property assets that are transferred into the ´bad bank´ will walk away with a combination of cash, debt or shares to add to their balance sheets, with the requirement that all banks increase their core capital classed as rock solid to 9% of total assets, a shift from the current 8%.

As well, the government announced that remuneration for senior managers and directors of distressed banks would be capped at 500,000 Euros per year, in an effort to stem protests at former directors of failed banks taking home millions of Euros in compensation at the expense of bank shareholders and depositors.

Olli Rehn, Economics Affairs Commissioner for the EU praised Rajoy´s cabinet for approving the decree stating that the creation of a bad bank sends an important signal to the world financial markets that Spain is determined to clean up and strengthen its banking sector.

With unemployment over 25% across the board and important regions such as Catalonia and Valencia asking for central government bailouts, Rajoy´s cabinet needed to do something to stem the banking sector crisis before tackling local government debt.

The Bank of Spain warned at the same time that capital flight to foreign banks had reached 20% of GDP, with June alone seeing net capital outflow of 56 billion Euros, and an estimated total of 220 billion in the first half of the year. Both the Spanish government and Eurozone will be hoping the creation of the ´bad bank´ will be sufficient to restore some confidence and stem the flow of cash leaving the country´s banks.

In a concession to the Spanish public, the economy minister Luis de Guindos announced that the government´s banking agency (Frob) will be given new teeth to take control of failing banks, and replenish funds in the depositor guarantee scheme which have been completely used in previous bank rescues.

Financial

Opening a Bank Account in Spain

It seems redundant to give advice about opening a bank account given how generally easy the process is, yet a lot of foreign residents really struggle with this, so for those who don’t speak much Spanish here is a quick guide to Spanish banking.

First, like English speaking countries Spain also has two general types of bank, regular banks (banco) that offer full banking services, and savings banks (cajas or caixas) that these days offer the same services as most banks. Unlike the UK, the distinction between a bank and building society has never really existed in Spain, the cajas started as non-profit savings banks, and could offer mortgages and finance, but so too could the banks.

Historically the cajas have been more popular due to charging lower fees and tended to have more branches, especially in the smaller villages, whereas most banks restricted themselves to the towns and cities and also offered more in the way of business banking services. The cajas all have a social component to them and tend to sponsor cultural events and services for the elderly or infirm.

As for which you choose to use for your own banking needs, you’ll find that all bancos and cajas will offer much the same services, couched in different marketing spin, and all offer banking for residents and non-residents alike. Most of the decision as to which to open an account with will come down to price and preference.

As a foreigner in Spain there are two types of account you can open, a resident account, or a non-resident account, and each is self-explantory;

Resident Bank Account
The determining factor as to which the bank opens on your behalf is whether you have registered for a Número de Identidad de Extranjero (NIE number). If so, the bank is legally obliged to open a resident account for you, and will then withhold a portion of the interest earned to cover taxes. This type of account requires a passport and NIE certificate to be opened.

Non-Resident Bank Account
If you are not a resident, ie you don’t have an NIE number, then you will be offered a non-resident account where interest earned is not withheld and fees are generally higher. This type of account only requires a valid passport or ID document from your country of origin. Every six months the banks and cajas are required by law to establish your residence status, a process that is done without input from you, but may cost you money anyway in fees.

Opening an account of either type is a relatively painless process. You go to the bank of your choice, tell the teller you wish to open an account, give them your identity papers and usually proof of address, fill in some forms, make a token deposit, and a few days later return to collect your ATM card. It’s likely you’ll be given a bank book (libreta) when you open the account if these are still issued, most cajas seem to do this but some banks don’t.

Depending on the account features, you may be issued a regular maestro card, or a Visa/Mastercard debit card which can be used as if it was a credit card, but without incurring debt since the funds will only be charged to the card if there is sufficient funds in your linked account.

Credit cards need to be applied for separately, and different conditions apply for acceptance, for example having a job or owning your own business.

The banking sector in Spain is quite modern, and all banks will have their own automatic teller machines, and most have Internet banking facilities. In the more progressive or tourist centres it is also common to find tellers and managers with good English or French/German language skills.