Five Spanish savings banks fail tests: banking association

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Five regional Spanish savings banks, of 19 analysed, failed stress tests to see how they would cope with worsened economic conditions, the Spanish Confederation of Savings Banks said on Friday.

But all eight Spanish banks, including Santander, the country's biggest bank, passed the tests carried out on a total of 91 financial institutions across the country, it said in a report.

The tests concluded that the five regional savings banks -- Banca Civica, Diada, Espiga, Unnim and Cajasur -- had core capital levels that were too weak to get them through another financial crisis.

All five were recently involved in the wave of sector consolidation which has been encouraged by the government and the Bank of Spain to help the reginal savings banks known as "cajas" strengthen their balance sheets.

In a statement, the Bank of Spain said the results "confirmed the solidity of the sector" and "justified the restructuring and recapitalization of the savings banks".

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

The tests carried out on 27 Spanish banks and 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.

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 approved on Wednesday a reform of the law governing the regional savings banks which allows them to raise fresh capital by selling shares known as "cuotas participativas" that 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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