Spain’s central bank chief confirms bailout extension option

The governor of the Bank of Spain has confirmed that the government of Prime Minister Mariano Rajoy may in October decide whether or not to ask for an extension on the maturity of the loan it received from its European partners to bail out the country’s banks.

As EL PAÍS has published, the European Central Bank, the European Commission and the IMF — the so-called troika — have been pushing Spain to seek to extend the period in which the loan remains available in order to provide a cushion against any further volatility in the sovereign debt markets as a result of additional bank stress tests to be carried out on European lenders. The Bank of Spain has also recently tightened coverage for loans that have been refinanced or restructured that could lead to banks being required to make more provisions.

The Rajoy administration has argued that should the nationalized banks need more capital, it will be able to fund this in the market. But it is not averse to seeking to extend the maturity of the loan provided that this does not come with additional conditions.

Spain has only tapped around 41 billion euros of the 100 billion made available to it by the European Stability Mechanism (ESM). Most of the 41 billion euros went to recapitalize Bankia, Novagalicia and Catalunya Banc, which have been nationalized.

“The government will have to take this decision and I suppose that will be in October,” Linde said at a seminar in Montreal on Monday.

“When you look at whether additional provisions might be necessary, we’re talking about banks that are under state control,” he said in an interview with Bloomberg. “We don’t expect these banks will need a new injection of capital, but we will have to wait until September to see how the economy evolves and the earning of the banks.”