WASHINGTON, Jan. 4 (UPI) -- Reports have revealed that Santander Central Hispano, Spain's biggest bank, will face severe fallout from the financial crisis in Argentina.
According to the FT Friday, the bank faces an exposure to the tune of $7.1 billion in outstanding loans through its Banco Rio Division.
Banco Bilbao Vizcaya Argentaria, another Spanish bank, was also affected as shares in both banks fell sharply in view of Argentina's future economic restructuring.
The news comes in lieu of the crisis strategy unveiled today by Argentina's new President Eduardo Duhalde. The plan envisages a dual currency system to follow a steep devaluation of the Argentine peso by as much as a 30-40 percent, according to government officials. Argentina, the third largest economy in Latin America, has adhered to an economic policy that pegs the peso to the dollar since 1991.
Shares in Spanish banks have declined over the past month as the situation in Argentina has deteriorated. Dollar loans make up two-thirds of the credit portfolios at Banco Frances, a subsidiary of BBVA, and Banco Rio. A big devaluation would provoke a steep rise in loan defaults.
In New York mid-afternoon, BBVA was down 1.88 percent at $12.53, while SCH had dropped 1.98 percent to $8.43.
Near the end of 2001, both SCH and BBVA announced reserves of 1 billion euros and 400 million euros respectively to safeguard against adverse events in Argentina, but experts believe that these amounts will be insufficient to offset the consequences of the most recent economic measures.
