The European Commission (EC) and the European Central Bank (ECB) paid their fourth official visit to Spain in order to evaluate the bank restructuring process. Thus, these two entities closed the negotiations previously started by the International Monetary Fund (IMF), which had meetings with Bankia, Unicaja, Liberbank, NCG or Banco Popular.
The EU troika analysed the Spanish financial system status three months before the rescue programme deadline, so as to decide whether Spanish banks will need all or part of the aid granted by Europe. It should not be forgotten that the Eurogroup provided Spain with €100 billion on July 2012, of which the country has only used €41,3 billion.
Several international market watchers estimate that some Spanish banks would need €9 billion of additional capital. This figure can, however, be reduced by half if the Spanish government carries out its tax credits reform.
The final report of the EU troika (expected in early November) will include accurate assessments of the development of banking credit, the impact on results of the annulment of the so-called “floor clauses”, and the reclassification of the refinanced loans. The latter, together with the credit squeeze, has been responsible for the recent increase in default rates of the banking sector.
The EU troika’s official visit is quite important since it evaluates the Spanish financial system for the coming 2014 stress tests –sponsored by the ECB and the standards of the European Banking Authority (EBA), which were unable to fully reflect the real situation of the euro zone’s banking sector in previous stress tests.
Several voices within the Bank of Spain believe that the Spanish financial firms as a whole are in a much better condition than that of other European banks. The challenge now is to demonstrate such “good health.”
The Spanish financial system has undertaken one of the biggest infrastructural adjustments in the euro zone (with the closure of more than 20% office park), even though the singularity of its banking and business model remains intact. In this way, the Spanish entities own a wide commercial network but with small offices when compared to the European ones.