Higher provisions hit profits of Banco Popular



Banco Popular - Lower Profits Due to Higher Provisions

Banco Popular – Lower Profits Due to Higher Provisions

New stricter rules that mandate higher provisions for bad loans forced Spain’s third largest bank – Banco Popular, to join ranks with bigger rival Santander in reporting lower profits for 2010.

The banks net profit for the year was reported at €590 million (£498 million, $804 million), a fall of 23 percent from 2009.

The bank was forced to make provisions worth €1.8 billion according to new standards laid down by Spain, to cover possible losses.

Banco Popular’s fourth quarter profits were hit the hardest, down by 40 percent over a year earlier. Most Spanish banks have been hit by the domestic property market bust and a struggling economy with massive government spending cuts.

The Non-performing loans of Banco Popular – as a percentage of its total assets climbed to 5.2 percent in 2010, compared to 4.8 percent reported a year earlier.

“2010 was a year of severe economic and financial crisis, worsened by a profound deterioration of the sovereign risk of many of the euro area countries”, the bank said in its financial report.

“This situation caused capital markets to remain virtually closed for many Spanish financial institutions throughout the year”, the report lamented.

The bank said that it has already put preventive measures in place to face any eventuality in the event of eurozone debt crisis becomes worse.

The bank has increased its core capital base and the Tier 1 capital has grown to 9.4 percent of its total Risk Weighted Assets (RWA) from 8.6 percent a year earlier.  It is now prepared to meet new international norms on capital requirement, meaning it has now greater capacity to absorb losses, the bank said.

Banco Popular has also reduced its exposure to the international wholesale market to meet its short-term liquidity requirements, making it less vulnerable to overseas investor confidence loss in the banking sector.

The results are in line with market expectations. The bank’s shares are trading nearly 70 percent lower than their high in 2007, but about 33 percent higher than the lows of 2008.

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