EU Says Spain Banks Qualify for Aid, Bad-Bank Timing Challenging

Spain has met the conditions to get a first tranche of aid for its lenders from Europe’s rescue funds, even as the schedule for setting up a so-called bad bank is “challenging,” the European Commission said.

“Spain has fulfilled all the required conditionality for the first disbursement of funds,” the EU Commission said in its autumn review, which was obtained by Bloomberg News.

Spain agreed to the bank bailout of as much as 100 billion euros ($130 billion) in June, as its narrowing access to financial markets made it unable to backstop lenders reeling from the collapse of a real-estate boom. As one of the conditions, Spain agreed to set up a bad bank for soured real-estate assets and is still seeking investors to reduce the burden on taxpayers.

Getting the 60 billion-euro asset-management company “fully operational by end-November is going to be challenging,” the commission said. Rapid progress is also needed on “the assessment of the banks’ viability, the finalization of effective restructuring plans and the transfer of assets to a commercially viable AMC.”

The restructuring plans of banks that are set to receive EU funds are expected to be approved this week, European Competition Commissioner Joaquin Almunia said last month. Spain is working to a deadline of Dec. 1 for the bad bank to be up and running.

The commission also called for a “further strengthening of supervisory competences” for the Bank of Spain, whose capacity to “issue binding interpretations on supervisory practices and regulatory issues is currently limited,” according to the report.

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