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You are here: Home News Spanish News More bank bailouts in Spain likely: central bank

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01/04/2009More bank bailouts in Spain likely: central bank

Bank of Spain governor says the state may have to provide aid to more finance institutions if the crisis is prolonged.

MADRID – Spain may have to rescue more financial institutions if the global crisis drags on, the central bank's governor said Tuesday, two days after the country's first bailout since the crisis began.

"If the international crisis is prolonged, it almost certainly will be necessary to restructure some small and medium sized institutions," Bank of Spain governor Miguel Angel Fernandez Ordonez said at a conference.

"We should prepare ourselves to use more public resources than on previous occasions," he said.

The Bank of Spain on Sunday took control of regional savings bank Caja de Ahorros Castilla La Mancha (CCM), replacing its directors with its own nominees and providing up to EUR 9 billion in liquidity.

CCM, which accounts for less than 1 percent of the assets of Spain's financial system according to the government, opened for business as normal on Monday and there was no rush by its clients to withdraw deposits.

Unlike other European countries, no Spanish bank has been formally nationalised due to the global financial crisis, in large part because tight regulations protected them from US high risk or "sub-prime" assets.

But Spanish banks are facing a rapid rise in non-performing loans as unemployment swells following the collapse of a decade-long property boom that had been a key driver of economic growth.

Ordonez said "the reductions in margins, the drop in financing from abroad and the rise in bad debts linked to the real estate sector and unemployment" had highlighted "certain weaknesses" in Spanish banks.

"It is not only inevitable, but also desirable, that there be a certain restructuring of the banking system," he added.

Economy Minister Pedro Solbes said Monday that no other Spanish bank is in trouble at the moment.

Santander and BBVA, Spain's two biggest banks, posted higher net profits in 2008 but many of the more than 40 regional savings and loans institutions like CCM are struggling to deal with rising bad loan ratios and debt downgrades by international credit rating agencies.

AFP / Expatica


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