Jan. 4 (Bloomberg) -- Spain plans a second round of stress tests and savings banks needing capital should raise it on their own, with “limited” use of the state’s FROB bank-rescue fund, Prime Minister Jose Luis Rodriguez Zapatero said.
Savings banks will be tested “immediately,” and lenders requiring capital should obtain it by “going to the market,” Zapatero said in an interview today with Onda Cero radio. “If any can’t, then they will have help from the FROB, but that will be limited,” he said.
The Socialist government, facing a surge in its borrowing costs, is trying to convince investors that the financial system doesn’t pose a threat to public finances, and the Bank of Spain has also called on savings banks to be more transparent. A round of European stress tests in July, which revealed Spanish savings banks had a capital shortfall of 1.8 billion euros ($2.4 billion), helped improve lenders’ access to capital markets and reduced yields on public debt.
“Anything that provides more transparency and information has to be a good thing,” said Hector Martinez, a banking analyst at Mirabaud Finanzas in Madrid. “I don’t think there’ll be anything revolutionary, because we already know what the regulator thinks.”
Bond Spread
The gap between Spanish and German 10-year borrowing costs fell to 239 basis points today from 249 basis points yesterday. That compares with a euro-era high of 298 basis points on Nov. 30 and an average of 15 basis points in the first decade of monetary union.
The European Banking Authority is planning a new round of coordinated stress tests this year, even as no final agreement on criteria or the date for results to be published has been announced. Zapatero told lawmakers in parliament on Dec. 22 that the new European tests would be broader and “more transparent” than the July examinations. Franca Rosa Congiu, spokeswoman for the European Banking Authority, couldn’t be reached for an immediate comment.
Spain’s FROB bank-rescue fund, created in 2009 with 9 billion euros and the capacity to take on another 90 billion euros of debt, has already committed about 11 billion euros to support a series of savings-bank mergers. That is equivalent to around 1 percent of gross domestic product and the money takes the form of loans.
Additional Data
Savings banks that are taking part in the restructuring process, coaxed along by the Bank of Spain, probably won’t be able to raise capital in the markets for at least a year or two, said Martinez. Meantime, the regulator will rely on the FROB to support the system, he said.
The Bank of Spain, which regulates the industry, has called on lenders to provide additional data on their exposure to the real-estate market. The information is due to be published in the coming weeks.
Zapatero also said that the overall budget deficit in 2010 was “somewhat” better than the target of 9.3 percent of GDP, compared with 11 percent in 2009. He reiterated a pledge that the deficit would meet the goal of 6 percent this year, double the European Union’s limit.
Source: Bloomberg Business Week