Economy Minister rules out need to further tap bailout

Government says Treasury has ready access to funding markets Germany expresses regret over leftover finance

Agencies|Claudi Pérez
Madrid / Berlin - 16 May 2013 - 17:23 UTC

The Economy Minister on Thursday ruled out Spain having to tap the remainder of the loan of 100 billion euros granted to the government to further recapitalize the sector and cover additional provisions for bad loans.

EL PAÍS reported on Thursday that the German government would have preferred that Spain draw on the full amount granted to it to clean up the banking sector, instead of the 40 billion euros it accepted. Most of that sum went to recapitalize the three banks that were nationalized because of their over-exposure to the ailing real estate sector: Bankia/BFA, Catalunya Banc and NCG Banco.

Part of the loan also went to capitalize the asset management fund Sareb, the so-called bad bank set up by the government to absorb the toxic property assets of the banking sector.

“In the case of new capital needs or higher provisions, the needs will be minimal in comparison with the effort already made, and it won’t be necessary to [further] tap the European loan, because unlike last year, there are no problems of access to the [funding] markets on the part of the Treasury or the banks,” an Economy Ministry spokesman said.

Sources said Spain submitted its banking system to severe stress tests last year that indicated further levels of capitalization that have now been covered. They said two decrees were also issued on provisions for doubtful loans to the real estate sector, with such additional coverage also having been completed. They said that a total of 150 billion euros have been dedicated to cleaning up the sector, and also pointed out the toxic assets that have already been absorbed by Sareb.

Berlin argues that a larger bailout would see funds trickle down to businesses

The Bank of Spain’s recent decision to ask lenders to revise their valuations of the state of loans that have been refinanced sparked a number of overseas media to question whether there are still hidden losses in the sector that will require further provisions.

The Financial Times on Thursday said additional provisions for restructured loans, which amount to 200 billion euros, could come as yet another blow to the Spanish financial sector.

A top-ranking figure in the German government lamented Spain’s decision not to fully tap the bailout it was offered. Berlin believes that the European financial sector, beginning with the Spanish savings banks, have not fully dispelled the doubts about their solvency despite the stress tests to which they have been subjected.

The IMF’s chief economist, Olivier Blanchard, suggested a few weeks ago that serious doubts remain about the state of health of the Spanish banking sector, but later backtracked on those comments.

Berlin has also argued that if Spain had fully tapped the available bailout, its banks would be better capitalized and the lack of funding to small- and medium-sized enterprises would be less of a concern.

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