Spain's regional banks seek 11 billion euros aid

16th June 2010, Comments 0 comments

Spain's regional savings banks known as "cajas" have requested around 11 billion euros from a state restructuring fund to carry out their merger plans, a Bank of Spain spokesman said Wednesday.

The banks had until Tuesday to request financing from the Fund for Orderly Bank Reconstruction (FROB), which was set up in June last year to help struggling saving banks merge or restructure.

The FROB, made up of public money and other existing central bank support funds, was capitalised initially with nine billion euros (11 billion dollars), which could be increased 10-fold if necessary.

The central bank has said that any money from the fund could be granted only in exchange for restructuring and deep cost cuts by the lenders concerned.

The Bank of Spain spokesman said the consolidation of the country's 45 regional savings banks would result in a reduction of 15-20 percent in their total workforce and a branch reduction of 20-25 percent.

Business daily Cinco Dias said the staff cuts would involve some 12,000 people.

Four cajas announced on Tuesday they had finalised plans to form an alliance to weather the country's uncertain economic outlook sparked by the collapse of the once booming property sector.

Caja Madrid and Bancaja -- the country's second and third largest Cajas -- and five other smaller regional savings banks also agreed on Monday to a "virtual" merger of their own to create Spain's biggest savings bank.

Spanish banks got off relatively lightly from the global credit crunch in 2008 as the country's strict rules meant they did not invest heavily in the high-risk US home loans that hurt financial institutions elsewhere.

But the savings banks, many of which are controlled by regional politicians, have been badly exposed to bad debt following the collapse of the property sector at the end of 2008.

The government has encouraged their consolidation in order to maintain liquidity and all but about a dozen are currently involved in some sort of a planned tie-up.

The Bank of Spain's proposal to tighten rules on provisions the lenders have to make against real estate assets on their balance sheets has added to the pressure on regional savings banks to merge.

The regional savings banks account for half of Spain's total lending and ensuring their financial health is seen as key to helping the economy rebound from its worst recession in decades.

© 2010 AFP

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