SUBDUED growth prospects at home are pushing mid-sized Spanish banks into foreign acquisitions that would have been impossible a few years ago as they struggled under the weight of bad loans.

    Helped in many cases by European Union rescue funds, Spain’s banks have reduced huge debts brought on by a property market crash and prolonged recession, and are now looking to grow.

    But the domestic market remains tough, with many companies still indebted and reluctant to borrow, and competition fierce for the few strong businesses seeking credit.

    With eurozone interest rates set to remain at record lows for the foreseeable future, some mid-sized Spanish banks are starting to copy the expansion strategy of bigger rivals Santander and BBVA, which weathered the economic crisis at home thanks to their overseas revenues.

    Sabadell, Spain’s fifth-largest lender, last week become the latest mid-sized lender to seek a deal abroad, making a US$2.6 billion offer for Britain’s TSB.

    “The problem for Spanish banks in general is that their stock of loans are not going to start growing again, on average, until at least 2016, and it’s hard to really be competitive in that environment,” said Juan Carlos Calvo, banking analyst at brokerage Espirito Santo.

    “Banks have to seek out profitability at all costs, and if that means going abroad then you go abroad.”

    With Spain’s housing market still recovering from its 2008 crash and nearly one in four workers unemployed, demand for mortgages remains weak.

    That makes meeting growth targets a challenge.

    Sabadell and larger rival Caixabank are aiming for a return on tangible equity (ROTE), a key measure of profitability, of 12 percent and 12-14 percent respectively. At the moment, they are generating around a third or less of that.

    Banco Popular, the country’s sixth-largest bank, does not have a return on equity target but as of last year it was making a return of just 2.3 percent.

    Popular had just over 27 billion euros in toxic real estate assets, amounting to 25 percent of its total loan book, last year, the highest percentage among Spanish banks which analysts say could make it more difficult for it to pursue acquisitions.

    For others, however, foreign growth is an option.

    To try to lift its profitability, Caixabank is seeking a dominant position and cost savings in neighboring Portugal with a bid for full control of lender Banco BPI. (SD-Agencies)