EC Says Spain ‘Broadly on Track’ on Bank Bailout, Sees Risks

Spain is “broadly on track” with the terms of a bailout for its banks and the industry faces “significant” risks, the European Commission said.

“Banking sector reforms have advanced as planned, but they could be further strengthened in some areas,” the commission said in an report on Spain’s compliance with its bank-recapitalization program published today. “Risks to Spain’s financial sector remain significant and several challenges still lie ahead.”

Spain has used 37 billion euros ($49 billion) to recapitalize nationalized lenders such as the Bankia group after seeking aid from Europe last year to backstop losses that threatened to further weaken government finances. The commission today praised the progress made by Spain in setting up a so-called “bad bank” to house soured real estate loans in state hands, while warning that deleveraging in the industry and the recession “reinforce each other.”

The commission and the European Central Bank recommend the disbursement of a second loan of 1.87 billion euros to bolster the capital of so-called “group 2” lenders, the commission said. The group comprises Banco Mare Nostrum SA, Banco Caja 3, Liberbank SA and Banco CEISS, all of which failed stress tests and were unable to raise capital privately.

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