Spain confident ahead of banks stress tests

19th January 2011, Comments 0 comments

Finance Minister Elena Salgado said Wednesday that Spain's debt-laden financial system is more sound than before, expressing confidence ahead of a new round of European bank stress tests.

European Union financial chiefs, prompted by Ireland's banking catastrophe, promised Tuesday they would soon launch new, more stringent tests across the bloc to check bank liquidity levels.

Spain's banks, weighed down by loans that turned sour after the collapse of a housing bubble, are a particular concern.

"Our financial sector continues to be in a position that is more sound than before," Salgado told national radio RNE when asked about the financial stress tests.

Thirty-nine regional banks, from a total of 45, are now in the process of merging or forging operating alliances as part of a restructuring led by the Bank of Spain.

Prime Minister Jose Luis Rodriguez Zapatero vowed in an interview published Saturday to pursue the restructuring "so that there will not be the shadow of a doubt over the sovereign creditworthiness in the system."

All eight major Spanish banks passed European Union bank stress tests conducted in July on their ability to weather a crisis but five out of 19 regional lenders examined failed.

The markets have since cast doubt on the tests, which gave a pass to the now bailed out Allied Irish Banks and Bank of Ireland.

Latest data Tuesday showed Spanish banks' non-performing loans ratio rose in November to the highest level since January 1996, as property-related losses weighed on balance sheets.

Total bad debt held by the banks rose to 104.78 billion euros (140.50 billion dollars) for a ratio of bad debt to total loans of 5.68 percent, up from 4.98 percent in October 2009, the Bank of Spain said.

Credit rating agency Moody's last month issued a negative outlook on Spain's banks and warned that total economic losses could reach 176 billion euros. It expected bank capital, profits and access to finance to remain weak.

Salgado also acknowledged in the radio interview that Spain is paying higher interest rates to borrow from the markets but said other countries were in the same position.

"But that shows us the work we have left to do, the road to follow, we have continue to inspire confidence ... so that the interest rates fall," the minister said.

"We have to continue with our austerity efforts, austerity shared among all ... we have to continue with the forms that that will allow us to grow more and better."

The government has had to pay high yields or rates of return to raise fresh funds, with the bond markets concerned over Spain's high annual deficits and sluggish economy, encumbered by an unemployment rate of nearly 20 percent.

Zapatero vowed last week to meet his goals of cutting Spain's deficit from 11.1 percent of economic output in 2009 to 9.3 percent in 2010 and 6.0 percent in 2011.

© 2011 AFP

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