Caja Madrid could ask for up to 3 bln euros in aid: report

1st June 2010, Comments 0 comments

Spain's second-biggest savings bank, Caja Madrid, could ask for up to three billion euros from a state rescue fund to shore up its accounts, daily newspaper El Pais reported on Tuesday.

The paper, citing unnamed financial sources, said that the Madrid-based lender "is studying the possibility of asking for 2.5 to 3.0 billion euros" from the Fund for Orderly Bank Reconstruction (FROB).

The FROB, with a funding capacity of up to 90 billion euros (110.7 billion dollars), was set up by the government last June after the Bank of Spain was forced to take over the running of savings bank Caja Castilla de la Mancha.

Caja Madrid, which has assets of about 190 billion euros, "wants to use this public money to clean up its accounts and increase its provisions in accordance with the Bank of Spain's new rules," the newspaper said.

Under new rules unveiled by the Bank of Spain last week, banks must make provisions for impaired loans within one year after arrears have emerged as opposed to between two to six years as was the case previously.

The new rules were seen as an effort to speed up the restructuring process of Spain's banking sector by forcing institutions to clean up their balance sheets.

Spanish banks got off relatively lightly from the subprime mortgage crisis in 2008 as the country's strict regulations meant they did not invest heavily in the high-risk loans that hurt financial institutions elsewhere.

But many, especially smaller unlisted saving banks that are usually controlled by regional politicians and which account for half of total loans, were badly hit by the collapse of the country's once-booming property market, both through loans to developers and mortgages.

The Bank of Spain has called for consolidation by regional savings banks if they are to survive the economic crisis, and several such mergers have taken place or are being negotiated.

Last month the central bank took control of one troubled savings bank, CajaSur, after it failed to complete a planned merger with another bank.

Last week Caja Madrid announced that it was negotiating an alliance with five other regional savings banks -- Caja Insular de Ahorros de Canarias, Caixa Laietana, Caja de Avila, Caja Segovia et Caja Rioja -- to guarantee liquidity and solvency.

© 2010 AFP

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