Spain urges Banks to continue restructuring process

Spain urged savings banks to continue their restructuring process on Wednesday and said it was essential that banks keep lending to businesses in order to stimulate the economy.

A far-reaching overhaul of the system was necessary for the banking process to work, Economy Secretary Jose Manuel Campa said at a banking conference.

"Spain must have a solvent financial system capable of efficiently directing financing to productive activities," he said.

Spain is undergoing a protracted consolidation of its network of unlisted savings banks which were left with heavy exposure to real estate and an excess of branches after a period of aggressive expansion during Spain's boom years.

Difficulties in accessing capital in the international markets has led listed banks to start a price war for deposits, which some say could mean further trouble for the savings banks, sucking customers away and depriving them further of funding.

Competition for deposits, coupled with the impact of low rates in the loan books and rising bad loans, translates into margin risk for the savings banks, Morgan Stanley said in a recent research note.

Spain's second-biggest bank, BBVA, said on Wednesday it was not in a price war and refused to be drawn on whether it would offer even higher rates after opting last week to match a 4 percent deposit rate offer by Santander.

"We are not entering any kind of war because we don't think we need to," he told reporters on the sidelines of a banking conference. "We don't have any liquidity problems," he added.

Further liquidity problems for Spain's banking system loom in the shape of proposed international reforms of capital and liquidity requirements - dubbed Basel III - said the largest savings banks, Barcelona-based La Caixa and Caja Madrid.

The rules would mean additional capital requirements of 48 billion euros for the Spanish banking system, La Caixa Managing Director Juan Maria Nin estimated.

The proposed reforms - aimed at forcing banks to hold more and better quality capital - would mean savings banks would have to look at other means of raising capital, Rodrigo Rato, chairman of Caja Madrid said.

"The solvency of Spain's savings bank sector and its ability to access capital must be assured," he said.