Salgado: 'cajas' will not fall foul of new stress test round

Spanish savings banks will be "in excellent condition" to undergo new stress tests, the results of which will be released in the summer, Economy Minister Elena Salgado said in Brussels on Tuesday.

By then, Spain's cajas, regional entities that for the most part have been heavily exposed to the real estate crunch, will have reduced costs and raised the additional two billion euros in capitalization recommended by the European stress tests of last July, the minister claimed.

There were some signs that investors were feeling somewhat reassured about Spain's economic prospects after Tuesday's Treasury auctions saw the premium fall on 12- and 18-month bonds. Salgado said the auction proved that "there is confidence in Spain and in Spanish debt." More good news came in the form of boosted industrial turnover last November and the decision by Nissan to manufacture its new pick-up in Catalonia.

Salgado added that new transparency measures requested by the Bank of Spain by late January, especially with regard to cajas' exposure to the real estate collapse, will help dispel any existing doubts about their resilience, even before the European tests are carried out. While the solvency of Spain's major banks has not been questioned, the weaker regional savings banks were recently forced to carry out mergers to preclude the possibility of failure.

The EU's economy ministers on Tuesday agreed to more stringent minimum liquidity requisites for banks at the next stress tests. EU sources told Reuters that the European Central Bank expects more banks to fail the new tests than the seven that did not pass last summer (five Spanish cajas, one German bank and a Greek one).

Notoriously, both Irish banks that took the test (Bank of Ireland and Allied Irish Banks) got passing grades, yet only two months later Dublin was forced to admit that its financial system needed a 50-billion-euro rescue package.

Meanwhile, the Spanish Treasury managed to reduce its borrowing costs thanks to lower pressure on euro-zone countries with deficit problems. In the first short-term auction of the year, Spain sold over 5.53 billion euros in 12- and 18-month bills at 3.01 percent and 3.40 percent, respectively.

In December, following the Irish bailout, Spain had to pay 3.52 percent and 3.79 percent. The state had no trouble reaching its target of betweenfive andsix billion eurosas orders came in at over 14 billion euros.