Spain to keep saving banks aid to a minimum: official

Spain will inject needed capital into its debt-laden savings banks but they must rely as much as possible on the private sector for refinancing, Spain’s secretary of state for the economy told AFP.

“We will help all those that need it but in reality as little as possible. The recapitalisation of the financial system should be carried out as much as possible through private sources,” said secretary of state for the economy Jose Manuel Campa said in an interview.

The savings banks are hobbled by loans to real-estate developers since the collapse of a property bubble and are at the heart of market fears that Spain could need a bailout like the ones granted Ireland and Greece last year.

While major Spanish banks like Santander or BBVA can comfortably cope with their bad real-estate loans, investors fear some savings banks may not be able to do so and will need costly government help.

To allay these concerns the Spanish government is racing to strengthen the savings banks, which account for about half of all lending.

Last week it announced new rules on the level of rock-solid core capital — equity capital and retained earnings — that the 17 savings banks must have on their balance sheets.

Spanish lenders will have to have a core capital level equal to 8.0 percent of total assets by September if they are listed, and a level equal to 9.0-to-10.0 percent of assets if they are not listed.

The government has threatened to take temporary stakes in those savings banks that do not meet the new requirements by the September deadline.

The government’s new core capital requirements are even stricter than the 7.0 percent required under tough new, international “Basel III” rules agreed last year.

It estimates the cost of recapitalising the savings banks at 20 billion euros (27 billion dollars). The market consensus is about twice that amount, and some analysts say the price tag could even be 100 billion euros or more.

Campa defended the government estimate, saying that preliminary data supplied by the savings banks “point to this amount.”

“If there are additional capital needs, the institutions will be required to come up with these additional amounts,” he added.

If the government buys a direct equity stake in the savings banks it will do so as a minority shareholder and it will hold on to the stake for up to five years at the most, the secretary of state said.

“The final goal is that these institutions be clearly well-capitalised institutions, solvent, profitable and with the normal functioning of private markets,” said Campa.

“With transparence and solvability, the credibility of Spain’s financial system is guaranteed.”

Prime Minister Jose Luis Rodriguez Zapatero’s Socialist government has pushed through unpopular austerity measures, including cuts to public workers’ wages, to slash the public deficit to 6.0 percent of GDP this year from 11.1 percent in 2009, the third-highest in the eurozone after Greece and Ireland.

But some economists have questioned the feasibility of this goal because they predict the Spanish economy will grow by less than the 1.3 percent forecast by the government.

Campa said the goal of a public deficit of 6.0 percent of GDP in 2010 was “absolute and unconditional” and “would not depend on the evolution of the economic cycle”.

He said 2010 was a “transition” year for the Spanish economy as it returned to growth while “2011 will be the year of the start of the economic recovery”.

Campa will travel to Paris on Tuesday and London the following day to present the government’s strategy for the sale of government debt in 2011 and explain its economic strategy to investors.