Spanish banks unlikely to hold back recovery

Banco Popular’s difficulties jar with improving conditions elsewhere in Spain’s banking sector, so its forced sale does not appear to signal further trouble ahead and will not hold back the economic recovery. But elsewhere, and in Italy in particular, banks continue to present a significant risk. However, the banking sector looks healthier in other respects. The NPL ratio is fairly high, but it has fallen some way from the 9.4% peak in Q4 2013. And it is far lower than the 18% in Italy and the 13% in Portugal. More importantly, in aggregate Spanish banks appear to have set aside adequate provisions for their troubled loans. Indeed, for Spain the so-called Texas Ratio, which divides NPLs net of provisions by banks’ capital, is among the lowest in the euro-zone.