Spanish Banks To Pay Customers $4.2 billion After European Court’s Loan Ruling

After Europe’s top court unexpectedly overturned a Spanish ruling that capped liabilities relating to a disputed mortgage clause, Spanish banks have been asked to repay customers more than 4 billion euros ($4.2 billion). This however, poses new challenge to some lenders.

Banks will have to compensate customers for what they lost even before May 2013, when Spain’s Supreme Court declared the mortgages invalid if they had not been presented clearly. The home loans had an interest rate that could not fall below a benchmark, meaning customers lost out on the lower mortgage cost when rates dropped beneath this level.

New charges resulting from Wednesday’s European Court of Justice ruling could eat into bank earnings, which have already been eroded by record low interest rates and fierce competition for a shrunken loan pool, and encourage more mergers.

 A Bank of Spain source said this could have an additional impact of “slightly more” than 4 billion euros on the country’s banks, in line with analysts’ predictions. Analysts expect an average hit of around 30 basis points on capital ratios.
The ruling, which was widely unexpected by the banks, is final and cannot be appealed, an EU court spokeswoman said.
It is still unclear, however, how the banks will go about repaying customers.

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