Salgado : "Some Cajas may fail stress tests"

 

The Country's Minister for Finance and the Economy, Elena Salgado spoke yesterday of her expectation for some Spanish cajas to fail in the latest round of stress-tests, whose results are due to be announced on Friday.

The Minister, who was yesterday also appointed deputy PM, had earlier commented how there would be no failures, however she backtracked when speaking to journalists yesterday: "I made this statement expecting the tests to be similar to last year, and assumed that the (Spanish banks') anti-cyclical provisions would be part of the capital calculation."

"It was surprising that these provisions wouldn't be included as capital, and as such, I cannot make the same estimate at this moment."

Over 10 years ago the Bank of Spain introduced a measure whereby banks were required to build up reserves against any future losses that may occur due to bad debt. During periods of growth, the measure obliges banks to set aside a percentage of each new loan as insurance against it goes bad. During the downturns, banks can draw on this reserve to cover bad loans, lessening their need to cut back on lending or raise new capital.

Spain's banks currently hold around 27 Billion Euros in these reserves, but under the terms of this latest round of stress-tests they will be not be included.

"If the provisions were included, no savings bank would fail," the Minister said.