By Jesús Aguado

MADRID (Reuters) -Damages to businesses in towns hit by floods in eastern Spain could rise to over 10 billion euros, with banks loan exposure to the area worth alone around 20 billion euros ($21.82 billion), representatives for local firms and a Bank of Spain official said on Tuesday.

On Tuesday, the government earmarked around 10.6 billion euros to help victims of some of Europe’s worst flooding in decades. At least 217 people died and more are still unaccounted for.

Spanish banks’ loans to areas worst hit by floods mainly in Valencia region would rise to around 13 billion euros to households and 7 billion euros to companies, said Angel Estrada, the central bank’s head of financial stability.

In total, the central bank identified 23,000 companies with outstanding loans and 472,000 loan holders in those regions.

Of those 150,000 were mortgage contracts on which the government and banks agreed to offer loan moratoriums. Clients will be spared from paying monthly instalments for the first three months and just pay interests for an additional nine months on their mortgages.

Estrada said it was important to make sure that those moratoriums would not lead to reclassification of credits that might trigger higher provisions.

Jose Vicente Morata, Chairman of Commerce for Valencia region, said that the damage to businesses in the worst affected area of this region would provisionally rise “well over” 10 billion euros.

Estrada said it was still too early to assess the precise economic impact of the floods though he acknowledged that there had been a more “significant destruction of capital” than during the COVID-19 pandemic.

He said the banking sector would be “able to absorb” any impact, though they had laid bare that climate risks were materialising faster than expected and banks should now focus on measuring accelerating physical risks as well as addressing the transition risks of shifting to a lower carbon economy.

Mirenchu del Valle, chairman of Spain’s UNESPA insurance association, said the Valencia floods would represent Spain’s “most significant damages claim for a climate event”, without putting a potential figure on it.

A spokesperson for the Economy Ministry, which oversees the insurance sector, declined to provide a figure for the claims so far.

So far, the most costly economic event by floods took place in Bilbao in 1983, when claims rose to more than 821 million euros and 1.08bln included associated damage for high winds, according to data from the Spanish insurance consortium.

($1 = 0.9175 euros)