Rescue fund for Spain's banks

SPAIN’S SOCIALIST government plans to reshape the country’s financial sector with the help of a €9 billion rescue fund aimed at troubled savings banks and set to be launched this month, Spanish finance minister Elena Salgado said yesterday.

The fund – which could borrow to leverage itself tenfold and so deploy up to €90 billion to finance recapitalisations and mergers – would enable the Bank of Spain to take control of banks that run into difficulties following the collapse of the Spanish housing market.

“In anticipation of possible problems, we thought it was a good moment to go ahead with a restructuring,” said Ms Salgado.

Spain’s commercial banks and cajas de ahorros, its regional savings banks, have so far proved more robust than many of their peers in the US, the UK and continental Europe.

Ms Salgado said the European Commission calculated that aid offered in Europe as a whole to shore up financial systems amounted to 30 per cent of gross domestic product, a proportion about twice as high as in Spain.

But Ms Salgado admitted that some of the country’s 45 cajas were starting to suffer from the rapid shrinking of their property-focused businesses.

In March, the authorities seized control of the small Caja Castilla La Mancha and offered up to €9 billion in emergency liquidity, although only €3 billion has been used. Bank analysts say cajas in particular have overextended themselves and predict that the bad-loan ratio for banks and cajas together will double by the end of this year to about 8 per cent of their assets.