Spain readies new plan to help troubled savings banks

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Spain said Friday it is drawing up a new plan to restructure regional savings banks, the weak link in its banking system and a major cause of concern over public finances amid the ongoing eurozone debt crisis.

"The government is preparing a plan the aim of which is to increase the solvency and the credibility of the savings banks," Deputy Prime Minister Alfredo Perez Rubalcaba told a news conference following a cabinet meeting.

The plan is being drawn up in conjunction with the Bank of Spain and the Spanish Confederation of Savings Banks (CECA), said Rubalcaba, who is also interior minister.

He said the details will be announced once the plan is finalised.

But 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.

Spanish banks got off relatively lightly from the subprime mortgage crisis in 2009, as the country's strict rules meant they did not invest heavily in the high-risk loans that hurt financial institutions elsewhere.

But many smaller unlisted saving banks, usually controlled by regional politicians, were badly hit by the collapse of the country's once-booming property market, both through loans to developers and mortgages.

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.

But markets remain nervous over the health the regional banks, known as cajas, which account for about half of all savings in the country.

The ratings agency Fitch on Wednesday warned that most of the savings banks "will still have very limited access to wholesale funding and remain reliant on the (European Central Bank) unless there is a deeper restructuring of the caja sector."

A report in Spanish daily El Pais on Friday 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.

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.

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.

But 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.

© 2011 AFP

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