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Loan freeze

The troika’s concern about the credit drought suggests that bank restructuring will be delayed

The so-called troika (the European Central Bank, the International Monetary Fund and the European Commission) has sent a mission to the Spanish banking sector, and from the questions they are asking we can deduce that they have serious and well-grounded concerns about the persistent lack of credit for small- and medium-sized enterprises (SMEs). This is understandable, because the recapitalization of Spanish banks — which was promoted by the troika itself, and took the form of a line of credit amounting to 100 billion euros of European money — was aimed at shoring up balance sheets and facilitating the flow of credit needed by SMEs. So far this effort has been a failure. The figures show that lending is still practically stagnant, while even the most optimistic forecasts put a return to normal credit conditions — something that is so vital for sustained economic recovery — until well into 2014.

Without a thorough understanding of the underlying problems of Spanish banks, we run the risk of falling into a sterile exchange of accusations, in which the banks blame the recession for the absence of viable investments, and the companies point the finger at the banks for looking primarily at the safety of their balance sheets, at the cost of restricting credit. The Spanish banking sector is currently facing three thorny uncertainties — something the ECB and the IMF will surely detect and evaluate — that stand in the way of a successful outcome for the first round of recapitalization, and thus of credit normality. The first is the doubts about the conversion of the banking sector’s tax credits into capital; if this possibility is refused, the banks will be facing a problem of considerable dimensions.

The second uncertainty has to do with refinanced loans, some of which are doubtful and some that will be simply impossible to collect. This will require further provisions, and new adjustments to the numbers. As was to be feared, the persistence of the recession has heightened the default rate, all of which does not bode well in the context of another difficult situation for the Spanish banking sector: the new stress tests now being prepared by the ECB for the beginning of next year.

Excessive optimism

The voices — official and otherwise — arguing that recapitalization has done away with the problems of the Spanish banking sector, appear overly optimistic. In view of the above-mentioned uncertainties — plus other relevant ones, such as the stagnation of margins and the sale of NovaGalicia and Catalunya Banc — the idea is gaining ground that the Spanish financial system is going to need another round of recapitalization. In this case the noose of deficit and debt will grow even tighter.

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