The EU Stress Tests were published recently and assessed whether banks will be able to survive future economic shocks. A total of 27 Spanish banks have been subject to testing and several of the smaller banks are expected to fail. Spanish regional lenders in particular are a cause for concern, having racked up heavy losses following the collapse of the Spanish property market.

Gregory Butcher, chairman of Ocean Village Gibraltar, said: “Being based here in Gibraltar and operating daily in the property and financial markets we are aware of both the ‘real life’ situation and in sharp contrast, that shown in the Spanish financial institution’s quarterly results.

“The benchmarking used in valuations of property assets in the appraisal of bank lending in Spain is flawed and as a result overvalues the property assets and hence shows less impairment.

“Spain’s financial institutions subsidise the mortgages on sales of their own repossessions to then gain higher capital prices than buyers would normally pay and appraisals then take those sales as the basis of valuations across a bank’s entire property book.

Butcher stated that these overvaluations are then used by the bank appraisers and in the EU’s stress tests.

Spain has an overhang of 610,000 unsold new homes, together with 1,100,000 resale homes currently for sale in the private market represent some years supply (414,000 homes were sold in 2009). The number of repossessions expected this year is 180,000.

As such the overhang of unsold stock in Spain is proportionally more than in the USA, which itself is into the third year of a significant property price correction.

Butcher said:“a substantial price correction is now required to sell on the overhang which will not have been reflected in the EU stress tests.

"The UK and USA have had their banking crisis and Spain faces proportionally a greater one, arguably with less resources but it appears it is also intent on attempting a postponement.”