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Zapatero : "Cajas need to boost capital"

Thu 13th Jan 2011

Spain's Cajas - regional savings banks - still need to increaese their capital, but can utilise a government rescue fund under certain market conditions, according to Prime Minister Jose Luis Rodriguez Zapatero.

The fund (Known as "FROB") "is in place as a mechanism for capitalization and restructuring in unexpected situations," the Socialist PM said in a speech he gave in Madrid earlier today. "Its support will always come under rigorous market conditions and have a temporary character until the institutions are able to have regular access to funding."

The bank rescue fund was created in 2009, and has the ability to generate 90 billion euros in order to support mergers between struggling cajas, which must pay a minimum interest rate of 7.75 % to use the money.

Spain's banking sector is still reeling from trying to absorb losses on real estate and bad loans, and 8 of the 13 mergers to date between such cajas have used a total of 11 billion euros from the fund.

Although the Bank of Spain says how it doesn't expect any more requests for the FROB funds this year, Moody's Investors Service has said the industry may require a further 90 billion euros of support. Moody's have calculated this estimate on a scenario wherby lenders would need a Tier 1 capital ratio, a measure of their financial strength, of as much as 12 % to tap funding.

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