Spanish Banks Shown Needing No Capital After ECB Exercise

Spanish banks were shown to need no more capital after a stress test by the European Central Bank that showed up a 25 billion-euro ($32 billion) gap across Eurozone lenders.

Liberbank, a lender with 45 billion euros of assets, was shown to have a 32.2 million-euro capital deficit under the ECB’s asset review and has already lined up 574.8 million euros this year to plug the gap, according to results published today. All the other 14 Spanish banks examined in the exercise passed the asset quality and stress test.

The near collapse of former savings banks including the Bankia group in 2012 forced Spain to take a 41 billion-euro bailout from the European Union that pressed the government into forcing banks across the system to recognize their losses linked to real estate. Under that process, Spain subjected its banks to stress tests the same year and forced lenders including Banco Popular Espanol SA to take steps to fix their balance sheets.

“The reform and restructuring process of the Spanish banking system carried out in recent years has borne fruit,” Bank of Spain Governor Luis Maria Linde said in a news conference in Madrid today. Spanish banks have taken charges of almost 280 billion euros for provisioning impaired assets between January 2008 and June 2104, Linde said.

“Lenders in our country face the future with healthy balance sheets and a solid solvency positions.”

Prime Minister Mariano Rajoy said Spain’s banking system is in “stupendous” shape. “That’s key to going deeper in the process of recovery of the Spanish economy,” he said in a speech in Murcia, Spain today.

David Vaamonde, an analyst at Main First Bank AG in Madrid, said while Spanish banks had been able to resolve doubts about solvency following the country’s financial crisis, the problems they face in building profits under conditions of low interest rates and weak credit demand hadn’t gone away.

“The question now is what profitability are they going to be able to deliver in the future,” he said by phone.

The ECB has studied the accounts of about 130 of the largest euro-area banks to asses the quality of their assets and their resistance to economic shocks. This health check comes before the ECB takes over supervision in November and the results have been published today.

To pass, banks must show they can maintain a ratio of common equity Tier 1, a measure of a bank’s ability to absorb losses, to weighted assets of 8 percent under current conditions and 5.5 percent in an adverse scenario in a simulated slump.

Kutxabank had a CET1 ratio of 12.03 percent in the asset review and 11.82 percent in the adverse scenario of the stress test, making it the best performer.

Banco Santander SA, Spain’s biggest bank, had a core equity Tier 1 ratio of 10.34 percent under ECB’s asset quality review and 8.95 percent in the adverse scenario of the stress test. Banco Bilbao Vizcaya Argentaria SA had a 10.54 percent CET1 ration in the AQR and 8.97 percent in the adverse scenario of the stress test.

Banco Popular passed with 10.06 percent in the AQR and 7.56 percent in the stress test adverse scenario.

“The Spanish financial system has had excellent results which on the one hand are the result of reforms carried out by the government,” said Jose Ignacio Goirigolzarri, chairman of Bankia, in an e-mailed statement. “It’s also the consequence of good work by the Bank of Spain.”

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