Spanish banks strain to borrow abroad: report

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Spanish financial institutions are having increasing problems in borrowing from foreign banks because of concerns about Spanish sovereign debt, the Expansion daily reported on Thursday.

The newspaper based its report on unnamed sources in several Spanish financial institutions to the effect that foreign banks were increasingly reluctant to lend to Spanish banks.

Local press also followed up a report in The Wall Street Journal that one of the leading Spanish banks, BBVA, had been trying unsuccessfully for a month to refinance one billion dollars (815 million euros).

Expansion said foreign banks were reducing the amount they lent to banks based in those eurozone countries worst affected by heavy public deficits and debt.

In Spain, the annual deficit on the public accounts, comprising central government, welfare and local government budgets, shot up last year to 11.2 percent of gross domestic product, far exceeding an EU ceiling of 3.0 percent.

The Socialist government, under pressure from the financial markets and the European Union, has adopted strong and highly unpopular austerity measures to try to reduce the deficit to 6.0 percent of output from 2011.

Greece, which has been rescued from debt default with funds from the rest of the EU, including Spain, and the International Monetary Fund, and Portugal, are also the subject of particular concern over the state of their public finances.

However, banks in eurozone countries are able to obtain unlimited refinancing funds at a fixed rate from the European Central Bank since October 2008 following the collapse of US investment bank Lehman Brothers which severely curtailed activity on the interbank market.

The ECB recently re-opened swap arrangements with the US central Federal Reserve bank to facilitate access for eurozone banks to funds in dollars.

© 2010 AFP

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