Spain does not currently require further funds beyond the 41.3 billion euros it already requested from a 100-billion European fund to bail out its banking sector. That’s according to a joint document by the European Commission and the European Central Bank (ECB), which has been seen by Reuters.
“There is at present no reason to foresee further program disbursements,” the report said.
The document, with the conclusions of the recent visit to Spain by the ECB and the International Monetary Fund (IMF) as an independent advisor, considers that profitability remains one of the main challenges ahead for the Spanish banking sector, given the current setting of low interest rates and rising bad debt.
Banks’ resistance in the current adverse economic scenario essentially depends on their capacity to generate profits before provisions that might counterbalance an increased deterioration of asset quality and the consequences of regulatory changes, the EC said in reference to new provisioning needs caused by a reclassification of refinanced credit.
European authorities also noted that the stability of the Spanish banking system could be affected by uncertainty over the sharing out of bailout costs as well as the arbitration processes investigating the sale of hybrid instruments to small investors, the report said in reference to the preferential share fiasco in Spain.