Five regional Spanish lenders fail tests, major banks pass

23rd July 2010, Comments 0 comments

All eight major Spanish banks passed EU "stress tests" to see how they would cope with worsened economic conditions but five out of the 19 regional lenders that were analyzed failed, according to results published on Friday.

The tests concluded that the five -- Banca Civica, Diada, Espiga, Unnim and Cajasur -- had core capital levels that were too weak to get them through another financial crisis, the Spanish Confederation of Savings Banks said.

They will need a total of 2.043 billion euros in additional capital to lift their Tier 1 ratio to at least 6.0 percent, the Bank of Spain said.

Bank of Spain governor Miguel Angel Fernandez Ordonez said the tests were based on a "highly unlikely" scenario of economic deterioration and showed that under "normal and predictable" conditions the Spanish financial system is "solid."

"The Spanish financial system is totally healthy," he told a news conference after the results of the tests carried out on a total of 91 financial institutions across Europe were published.

Ordonez declined to comment on how Spain's banking system compared to that in other European nations.

Only two other banks -- Greece's ATEBank and Germany's Hypo Real Estate -- fell short of the EU-wide checkup of the sector.

The tests carried out on 27 Spanish banks and regional lenders known as "cajas" account for 95 percent of Spain banking system, according to the Spanish government, which said other European nations subjected only half of their banking system to the tests.

The five cajas which did not pass the stress tests have all been involved recently in the the wave of sector consolidation which has been encouraged by the government and the Bank of Spain.

A total of 39 of Spain's 45 regional savings banks are involved in 12 separate restructuring processes.

Spanish banks got off relatively lightly in 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 many regional savings banks have been heavily exposed to bad debt since the collapse of the property sector at the end of 2008.

The regional savings banks, many of which are owned by regional politicians, account for about half of all lending in Spain.

Spain's parliament on Wednesday approved a reform of the law governing the regional savings banks that allows them to raise fresh capital by selling shares known as "cuotas participativas," which carry voting rights.

The new law will also reduce the influence of regional politicians on their management in a bid to make them more professional.

© 2010 AFP

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