Spain mulls part nationalisation of savings banks

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Spain could partly nationalise some debt-struck savings banks as a temporary step as it combats fears of an Irish-style crisis, an official report and news media said Friday.

Spain's regional savings banks, which account for about half of all savings in the country, loaned heavily to the property sector before the housing bubble collapsed in 2008 and plunged the country into recession.

The regional savings banks, known as cajas, must disclose their exposure to the property sector -- estimated to be twice the level of traditional banks -- before the end of this month.

Spain's Fund for Orderly Bank Restructuring, the FROB, outlined a scenario in which it could take a stake in the savings banks in a presentation published online.

The FROB presentation -- which was accompanied by a separate note stressing that the content referred only to "working hypotheses" -- was widely reported in the media Friday.

In it, the FROB said new measures could strengthen the requirements on banks' solvency and capital quality so they can meet the most stringent international standards and future stress tests.

New capital could be obtained from three sources, it said:

-- From private investors in market conditions;

-- Temporary support granted by the FROB to help the entities to raise funds from private investors;

-- And "in the last instance, the FROB could provide the funds directly, taking a stake on the entity on a temporary basis."

The FROB presentation, which carried a January 18 date, said other measures could include speeding up the separation between financial and social activities of the savings banks to improve management.

It also outlined possible legal reforms to make it easier for savings banks to access financial markets and to encourage private investment with greater transparency, thus imposing market discipline.

A report in Spanish daily El Pais said there was some internal wrangling in the government over the next step for the savings banks, with the finance ministry arguing there was no need for legislative changes but the prime minister's office and the Bank of Spain in favour.

Forty regional banks, from a total of 45, are now in the process of merging or forging operating alliances as part of a restructuring led by the Bank of Spain.

All eight major Spanish banks passed European Union bank stress tests conducted in July on their ability to weather a crisis but five out of 19 regional lenders examined failed.

European Union finance chiefs, prompted by Ireland's banking catastrophe, promised this week they would soon launch new, more stringent tests across the bloc to check bank liquidity levels.

Latest data Tuesday showed Spanish banks' non-performing loans ratio rose in November to the highest level since January 1996, as property-related losses weighed on balance sheets.

Total bad debt held by the banks rose to 104.78 billion euros (140.50 billion dollars) for a ratio of bad debt to total loans of 5.68 percent, up from 4.98 percent in October 2009, the Bank of Spain said.

Credit rating agency Moody's last month issued a negative outlook on Spain's banks and warned that their total economic losses could reach 176 billion euros. It expected bank capital, profits and access to finance to remain weak.

© 2011 AFP

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