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Spanish cajas turn to Asia in quest for capital

Source: Reuters - Tue 18th Jan 2011

Spain's regional savings banks are planning a March road show to Asia to drum up investor interest, having failed as yet to strike any private sector deals, savings bank sector sources told Reuters on Tuesday.

The latest attempt to attract private capital into the unlisted savings banks, or 'cajas', follows similar trips to Europe and the United States last year.

Spain's cajas are under pressure to raise capital from private investors following a government-driven merger process last year which cut their numbers to 17 from 45.

The fragmented Spanish banking system, exposed to a collapsed property market and rising bad debts, is at the heart of concerns about the stability of the country's finances. The cajas account for around half the financial system.

The savings banks plan to visit Japan, China, Singapore and Indonesia, sources at the cajas said on Tuesday.

"Investors have shown interest," one said. "The recapitalisation of the cajas is not an urgent matter, the problem is more one of financing and short-term liquidity."

Prime Minister Jose Luis Rodriguez Zapatero has said he is planning a second round of recapitalisation for the cajas, but the government has not given any details on how this might be carried out.

The cajas have not yet talked with the government regarding its plans and are unaware how they would be carried out, the sources said. Nor have they received any detail on new stress tests.

Spanish Economy Minister Elena Salgado said on Tuesday Spain's cajas would be recapitalised in time for tougher stress tests this year.

Five savings banks failed Europe-wide stress tests in July.

Spanish banks, like Ireland's, lent heavily to property developers and buyers during a debt-fuelled housing and construction boom. The savings banks need capital to flush the effects of bad loans, bankrupt debtors and falling property prices from their balance sheets, analysts believe.

Barclays Capital estimates cajas' recapitalisation needs are about 46 billion euros, rising to 92 billion euros in a severe economic downturn.

"We think that the restructuring and recapitalisation of the savings bank sector is probably the most important and pressing issue for the government at this juncture," said Barclays Capital in a recent note.

The Bank of Spain estimates banks' potentially problematic exposure to the real estate and construction sector stood at 181 billion euros at June 2010.

The cajas have enough provisions to cover potential bad loans and there are no nasty surprises on their balance sheets, the sources said.

"The cajas have enough provisions to face bad debts and we don't see the main problem there," one of the sources said.

Savings banks' total bad debts stood at 47.3 billion euros in November, Bank of Spain data showed on Tuesday. They have provisions of 27.6 billion euros. The percentage of bad loans against total loans is 5.53 percent for the cajas, less than the 5.68 percent for the Spanish banking sector as a whole.

Cajas are releasing more detailed accounts of their exposure to real estate debt alongside full-year results over the next few weeks, following demands from the Bank of Spain.

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