Thursday 19 October 2017

Spain’s bank recapitalization plan wins EU approval

Emma Ross-Thomas and Matthew Newman

European Union regulators approved Spain’s bank recapitalization plan worth as much as €99bn, opening the way for what the government expects to be a wave of mergers among savings banks.

The plan is limited in time and scope and requires banks to pay back the government at market rates. The approval is until June 30, 2010, the European Commission, the EU’s executive agency, said in an e-mailed statement today.

The fund has initial capital of €9bn and can take on debt of as much as €90bn, the government said in June. That total amounts to about 9pc of gross domestic product.

“The Spanish recapitalization scheme will strengthen confidence in the Spanish banking system and, above all, encourage lending to the real economy,” Neelie Kroes, the EU’s competition commissioner, said in the statement. “The scheme establishes sufficient safeguards to limit disproportionate distortions of competition.”

Spain’s banks weathered the worst of the global financial crisis with only one small savings bank requiring a state rescue.

As the collapse of the country’s debt-fueled construction boom prompted a surge in loan defaults, and the Bank of Spain sees overcapacity in the industry, the government set up the fund last year.

Finance Minister Elena Salgado urged lenders, and the savings banks in particular, to carry out mergers “as quickly as possible” to use the window of opportunity provided by the commission, Efe news service quoted her as saying.

Bank of Spain Governor Miguel Angel Fernandez Ordonez on January 26 also urged savings banks in the country to speed up consolidation.

Some merger processes were “taking longer than they should,” and called on all those involved, which include regional political authorities, not to delay mergers unnecessarily.

“This lost time could end up damaging the flow of credit to companies and families in the area,” he said.

Bloomberg

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