Lending is in limbo as Northern Rock’s shadow reaches Spain

[verbatim]

From the Times

Lending in Spain’s financial and corporate sectors is grinding to a virtual standstill amid a climate of suspicion about which bank could be the “Spanish Northern Rock”.

“Everything has basically stopped because banks are too fearful to lend to each other,” one banker said. “Everyone wants to know who has been affected by the recent turbulence. There is a climate of total mistrust.”

An official from one of Spain’s largest construction companies said: “Everyone is waiting for banks to publish their third-quarter results before lending to anyone. They want to see who is in trouble.”

The Spanish banking system is considered to be extremely solid by the International Monetary Fund and analysts say that banks did not lend heavily in the sub-prime market. However, some analysts fear that Spanish banks could be affected if the lack of liquidity persists or if there is a serious correction in the property market. House prices have risen by 175 per cent since 1997.

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Because house prices have risen so far, Spain is one of the countries at the highest risk of catching America’s property woes, according to a report by Euler Hermes, a leading international insurer of credit risk. “The UK, Ireland and Spain appear clearly at risk,” it said.

Speculation about which banks may be overexposed to Spain’s property market is rife, but no one is ready to name names. Moody’s Investors Service, the international credit ratings agency, said in a report this week that five, unspecified Spanish savings banks were particularly vulnerable to a sharp drop in the value of the country’s property market. Spanish bankers were furious at the report, securing a clarification by Moody’s the next day that played down the risk.

business.timesonline.co.uk/tol/b … 648538.ece