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Spanish Banks Probably Won’t Need More Capital Linde Says

Bank of Spain Governor Luis Maria Linde
Bank of Spain Governor Luis Maria Linde said, “We don’t expect that these banks are going to be in need for any new injection of capital, but we have to wait until September to see how the economy is going, the profits for these banks.” Photographer: David Vilder/Bloomberg

Spanish banks have enough resources so that they probably won’t require further capital injections, Bank of Spain Governor Luis Maria Linde said.

Spain was granted access to as much as 100 billion euros ($133 billion) in European money last year to support its lenders following a real estate crash. It’s tapped about 41 billion euros of the facility so far, with about half of the amount going to Bankia SA, the country’s fourth-largest banking group.

“When we think about possible additional needs, we are thinking about the banks which were under the control” of the country’s bank rescue fund, Linde said yesterday in an interview at the International Economic Forum of the Americas in Montreal. “We don’t expect that these banks are going to be in need for any new injection of capital, but we have to wait until September to see how the economy is going, the profits for these banks.”

An economic slump in its sixth year is generating mounting defaults for Spanish lenders that in some cases refinanced or restructured more loans to avoid booking losses. Spanish banks had 208.2 billion euros of refinanced or restructured loans at the end of last year, the Bank of Spain said May 7.

Additional provisions, “which perhaps would be necessary, are well under the possibilities of these banks,” Linde said, referring to bailed-out lenders such as Bankia. “We cannot say that no additional provisions would be needed. Perhaps some would be needed, but we think that these additional provisions can be put on the balance sheet of the banks without any European help.”

New Provisions

Any new provisions would fall short of the 60 billion euros booked in 2012 by the country’s lenders, Linde said.

“Perhaps some additional needs exist, but nothing compared with the enormous amount which was put in the last year,” he said.

Spain and the European authorities may decide in as few as three months whether to extend the Dec. 31 deadline for the country to tap more funds for its bailout program, Linde, who is a member of the ECB’s Governing Council, also said. El Pais newspaper reported yesterday that the ECB and the IMF have made the offer to the Spanish government.

“There is a question if this program is going to be prolonged or not, Linde said. ‘‘This question is not closed. It’s not closed on the side of the European authorities, and it’s not closed on the side of the Spanish authorities.”

“The last visit concluded just three weeks ago. There is going to be a new visit in September or October,” Linde said. “Then the Spanish authorities will discuss with the European authorities if this program is prolonged or not.”

Credit Growth ‘Weak’

Credit growth in Spain remains “very weak” due to the state of the country’s economy, Linde said separately.

Gross domestic product contracted for a seventh quarter in the first three months of the year as the toughest austerity measures in the nation’s democratic history and a 27 percent unemployment rate sap domestic demand.

“We don’t think that low or negative credit growth in Spain is due mainly to lack of capital,” Linde said. “The proof of that is that this negative growth is recorded all across the banking system, including banks that don’t have any problem of capital.”

“This very weak credit growth in part can be explained because of not very strong demand -- and when there is demand, not very solvent demand. It’s totally normal in an economy which is in the second recession in four years. It would be a miracle for this kind of economy to have a very strong demand of credit.”

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