Spain: Cajas undone by their models

The merger proposed last month between two savings banks in Andalusia, the smaller Caja de Jaén and the larger Unicaja, marks the start of a wave of consolidation that will sweep through Spanish banking in the months ahead.

The larger publicly quoted Spanish banks have so far survived the crisis in good shape, partly thanks to the conservative provisioning policy imposed by the Banco de España through the good times. But as the Spanish economy contracts sharply and unemployment rises above 18% and heads higher, problem consumer and housing loans are rising fast. The best-managed Spanish banks’ non-performing-loan ratios will rise from under 2% in 2008 to 5% or higher next year and the savings banks will be particularly hard hit.

The head of one Spanish bank says: "The savings bank model has not worked so well. The exposures of the cajas are very concentrated....