By Jesus Aguado and Andrew Hay
MADRID (Reuters) - Rising loan defaults, slowing business and higher financing costs are likely to hurt Spanish bank income and lead to restructuring, bank leaders said in a television program broadcast on Saturday.
Spain's banks face falling business and must accept credit growth will not return to past levels, Bank of Spain Governor Miguel Angel Fernandez Ordonez said.
"The banks need to take heed of all this because it could affect their income statements," he told Spanish National Television's Weekly Report program which focused on the Spanish financial system.
Spain's tightly regulated banks have avoided U.S. subprime assets and built up high provisions against defaults following the collapse of a decade-long house building and property boom.
Leading banks Santander
Smaller institutions and savings banks have higher real estate exposure and liquidity problems which have raised expectations of mergers.
"We have the opportunity to come out of this in a better position, and clearly, in the financial system, there will be restructuring, and institutions are going to emerge much stronger than before," BBVA chief Francisco Gonzalez told TVE.
Santander Chairman Emilio Botin said some large banks had suffered because they ignored basic business practices.
"They forgot about clients they forgot about risks," Botin said. "There are no secrets in banking, what the banks have to do is what they've always done, that is provide credit, take deposits, know their clients very well and be very prudent in terms of risk."
He told Spaniards not to worry about their deposits.
"Savings are safe and we have banks and savings banks that are healthy and strong. Relax," Botin said.
Ordonez warned banks against complacency.
"They face a challenge from bad debt, a greater increase in bad debt, the challenge of less business, because obviously we're not going to return to (past) credit growth levels, and the challenge of higher financing costs," he said.
Spain's bad debt rate has tripled in the past year to 2.5 percent of outstanding loans in August, marking the highest rate since 1998, but still a relatively low level for Europe.
Some analysts see that rising over 6 percent in 2009 when the International Monetary Fund expects Spanish GDP will shrink 0.2 percent, marking Spain's first recession since 1993.
Spanish Prime Minister Jose Luis Rodriguez Zapatero has offered to buy up to 50 billion euros ($67.35 billion) of bank debt, and guarantee at least 200 billion euros in bank debt issues, to boost liquidity and jump-start lending.
"I'm convinced confidence is already rising and its going to help reactivate the economy," Botin said of the government package.
(Reporting by Jesus Aguado and Andrew Hay; Editing by Richard Williams)
