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CaixaBank, Popular book new provisions for mortgage floor contract claims

At least two Spanish banks will book hundreds of millions of euros in additional provisions to cover the costs of potential claims relating to interest rate floors on mortgage contracts.

The Spanish Supreme Court ruled in 2013 that mortgage floor clauses, which cap the interest rate on floating-rate mortgages, were unfair to customers who had paid too much despite the fall in interest rates, and ordered banks to compensate clients who were affected from the time of its ruling. However, the European Court of Justice decided in December 2016 to require banks to also repay customers what they lost before 2013. The Spanish government then approved in January 2016 a royal decree setting a three-month period for banks to settle with affected customers.

CaixaBank SA will book a provision of €110 million, in addition to the €515 million it had already set aside in 2016 to cover the potential impact of the EU court ruling. Banco Popular Español SA, which has already booked €334 million in provisions in its results for the first half of 2016 for potential claims, will book approximately €229 million in additional provisions.

Additionally, Banco de Sabadell SA said it expects to take a hit of up to €490 million from the recent court ruling, but noted that the amount could still be reduced and that it expects its existing provisions to be sufficient to cover any potential negative impact.

Meanwhile, Banco Bilbao Vizcaya Argentaria SA reiterated that it expects a hit of approximately €404 million on its full-year 2016 net attributable profit arising from the issue, while Liberbank SA said its previous provision of €83 million before taxes will not change. Bankia SA has also already provisioned €114 million for potential claims and is sticking with that amount.