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Spanish savings banks move credit positive

Source: Reuters - Mon 24th Jan 2011

Spanish government moves to enhance the solvency and transparency of debt-laden and mostly unlisted savings banks could improve their credit ratings, rating agency Moody's Investors Service said on Monday.

Last week the government's bank restructuring fund FROB announced that new legal reforms were being considered for the regional savings banks, known as "cajas".

"Any measures restoring market confidence in the cajas would also help to improve market perception of the government's own credit profile, now weighed down by the continued concern about potential banking sector liabilities," Moody's added in its weekly credit outlook.

Spain plans a partial state takeover of its weakest savings banks as it seeks to reassure investors a rescue will not weigh on its deficit and it will not follow Ireland in seeking an EU/IMF-backed bailout.

Signs of greater transparency and a definitive plan for the banks sent Spain's 10-year benchmark bond to its highest price since early December on Friday.

Deputy Prime Minister Alfredo Perez Rubalcaba said banking system reform will take a jump forward this week, with market sources flagging the likelihood of some concrete measures being announced after Friday's cabinet meeting.

The regionally focused cajas, which account for around half of Spain's financial system, have been forced through a consolidation process to cut their numbers to 17 from 45, and are facing a new round of capitalisation.

The banks must unveil a detailed breakdown of property holdings and loans by Jan. 31, so their books can be opened to investors who claim their capital shortfalls are greater than reported.

Moody's said recent government announcements seem to show a shift in its strategy to restore confidence in Spain's financial system and in the savings banks in particular.

"It looks increasingly likely to us that the focus is shifting towards an instant recognition of potential losses and an immediate recapitalisation on the back of upfronting losses," the ratings agency said.

The FROB has ploughed around 11 billion euros in loans into the sector, but Moody's said that under its stressed case scenarios up to an additional 89 billion euros could be required.

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