Spain banks pass tests by counting loans as capital: report

22nd July 2010, Comments 0 comments

Spanish savings banks passed European "stress tests" on their ability to survive a new shock by counting government bail-out loans as capital, El Economista newspaper reported Thursday.

The tests were carried out on eight Spanish banks and 19 savings institutions and markets are eagerly awaiting the results, due out on Friday.

"We should expect that none of them will fail, thanks to capital injections they received from the Spanish Fund for Orderly Bank Restructuring (FROB)," the paper wrote, citing financial sources.

The FROB was set up in June 2009 and injected around 10.2 billion euros into regional savings banks after they were hit hard by the bursting of Spain's real estate bubble which they had largely financed.

For the stress tests, "the Bank of Spain authorised this aid to be counted as first category capital," thereby boosting their liquidity, El Economista reported.

But, the paper added, the financial aid is made up of loans which must eventually be repaid.

Interest on the loans in the first year is 7.75 percent, rising to 8.25 percent in the second year.

Spanish savings banks which did not receive aid are now worried that the stress test results will class them lower than banks that did receive aid, the paper said.

© 2010 AFP

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