Spain to allow partial takeover of troubled lenders

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Spain will change regulations to allow the partial takeover of its weakest lenders and require all banks to bolster the amount of capital they hold to shore up confidence in its financial system, Economy Minister Elena Salgado said Monday.

Spanish banks have been hobbled by loans to construction and real estate developers since the collapse of a property bubble and they are at the heart of market fears that the country could need a bailout from the European Union and the International Monetary Fund 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, there are fears that some regional savings banks known as "cajas" may not be able to do so and will need costly government help.

Salgado said Spain will set the core capital level for all lenders at 8.0 percent, more than the 7.0 percent required by 2018 under new, international "Basel III" rules agreed in September.

"This ratio can be higher for lenders that are not listed or that do not have a significant presence of private investors and depend on the wholesale market for more than 20 percent of their assets," she told a news conference.

The amount needed to recapitalise the country's banking system will not exceed 20 billion euros (27 billion dollars) and "all or part" of that sum will come from financial markets, the minister added.

Lenders will have until September to boost their capital and the government will step in to take temporary stakes in those savings banks that do not meet the new requirements.

To do this Spain's banking regulations will be changed to allow the state-backed Fund for Orderly Bank Restructuring, or FROB, to acquire direct equity stakes in the so-called cajas for up to five years, Salgado said.

"We have deemed necessary to implement these set of measures to dispel doubts on the banks' capacity to resist under adverse scenarios, so they could access markets and grant loans to the country's economy," she said.

Many Spanish savings banks, notorious for being used by local politicians that control them to fund pet projects from football stadiums to airports, have been locked out of the wholesale market in recent months.

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.

Salgado said increasing the core capital ratio would ensure that all Spanish lenders would pass a new round of European bank stress tests that will be held later this year.

The Bank of Spain has been forcing the savings banks into a round of mergers, reducing their number from 45 to 17.

Earlier on Monday ratings agency Moody's Investors Service said Spain's increased resolve to strengthen its troubled savings banks through legal reforms and further recapitalisation was positive for the savings banks and the country.

"To the extent that these announcements will strengthen capitalisation and improve governance structure, they will be credit positive for the cajas," Moody's analyst Maria Jose said in a note to investors.

Trouble at the cajas was one reason Moody's gave for putting Spain's Aa1 credit rating on review for a possible downgrade last month.

© 2011 AFP

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