Spain cajas to gain more time to seek capital

 

Spain will grant its indebted savings banks until next March, six months later than previously expected, to seek at least 20% private capital or list on the stock exchange, reports suggested on Friday.

The government is due to approve a law on Friday spelling out new capital requirements for its savings banks, called cajas, in a move aimed at dispelling concerns about the stability of its financial system after a credit-fuelled property boom and bust.

According to an unsourced report in La Vanguardia newspaper the government would agree to give the savings banks until March 31, 2012 to raise capital or become listed entities.

However, they would still have to show by the original September 2011 deadline that they have plans in place to meet new capital requirements.

Failure by the banks to meet the imposed deadlines could involve state intervention in the banks and partial nationalisation, the government has warned.

The decree will crystallise government proposals to overhaul the banking system following weeks of talks between politicians and the unlisted regional banks.

It will force cajas to seek private capital, either by direct investment or stock market listings, in order to shore up capital reserves that have been diminished by indiscrimate lending to property developers.

Concerns the ailing savings banks could require an expensive bailout, potentially forcing Spain to follow Greece and Ireland and seek an international bailout, have weighed on the country's sovereign debt for months.

Cajas have been fighting for an extension to the original September deadline for seeking capital, arguing they need more time.

Key elements in Friday's law will be how much time the banks get to recapitalise and what levels the government sets as minimum capital requirements.

The government has stipulated an 8 percent minimum core capital ratio - a measure of a bank's ability to withstand financial shock - for listed banks, jumping to 10% for unlisted banks that fail to attract private funds.

The government's definition of core capital and what instruments qualify will also be in focus.

Economy Minister Elena Salgado told banks in a letter last week that they could include loans from the state-backed fund set up to aid bank mergers, the FROB, in their core capital calculations.