Stress tests show Spanish banks need €59bn

SPAIN’S BANKS need an extra €59.3 billion in capital, according to the results of stress tests released yesterday, as the country appeared to inch closer to a full sovereign bailout.

The estimate for Spain’s capital shortfall, drawn up by US firm Oliver Wyman, is close to the €62 billion identified in a preliminary report released in June.

However, if ongoing mergers in the sector are taken into account, the real figure is an estimated 53.7 billion. In presenting the results, Bank of Spain deputy governor Fernando Restoy highlighted the “extremely rigorous” nature of the audit. “We’re convinced that as a result of this process, we will have without doubt a banking system that is more efficient, more solid and more profitable and therefore much more able to contribute to the recovery of the Spanish economy,” he said.

Yesterday’s results offer more detail than the June study, specifying the health of particular banks. Of the 14 lenders studied, seven were deemed able to meet minimum capital needs outlined in an adverse economic scenario which included GDP shrinking by 2.1 percent in 2013.

Spain’s biggest and most internationally known banks, Santander and BBVA, were in this group.

The report found that four banks, all of which are already at least partly under state control and undergoing restructuring, contain 86 per cent of the sector’s capitalisation needs. These include BFA-Bankia, which was part-nationalised in May and requires €24.7 billion in a worst-case scenario. The other lenders in this group were Catalunya Banc (requiring €10.8 billion), NCG Banco and Banco de Valencia.

The remaining three banks studied are not under state control but may need help raising capital, according to the study.

“The problems are clearly identified,” said secretary of state for the economy and business Fernando Jiménez Latorre. “The capital needs are concentrated mainly in a small number of lenders that are undergoing restructuring.”

The audit is part of an effort by the government of Mariano Rajoy to steady a sector which has been rocked by the burden of toxic assets following the collapse of a decade-long real estate bubble.

With the audit results now published, Spain is expected to finalise details of the rescue loan for the banking sector that it requested from its European partners in June. That credit line, it was initially agreed, could total up to €100 billion.

However, Mr Restoy said the final amount Spain’s banks borrow from the EU could be substantially lower than the total capital needs cited in yesterday’s report because lenders will embark on their own capitalisation plans.

The stress test results follow the conservative government’s presentation of an austere 2013 budget on Thursday. The European authorities welcomed the budget and reform plan. Besides Spain’s financial bailout, speculation has been mounting that the country will soon request a full sovereign bailout.