Spain’s request for as much as 100 billion euros ($125 billion) of European bailout funds may provide the country with enough money to shore up its banking system after three failed attempts in as many years.
“Now that they have this money, it will hopefully finally be possible to recognize all the hidden losses and clean up the system,” Luis Garicano, a professor at the London School of Economics, said in a phone interview.
Spanish banks will probably face fresh provisioning rules as the government mulls how to deploy the funds after receiving information on the size of the capital shortfall from the IMF and the independent audits it has commissioned, said Jaime Becerril and Axel Finsterbusch, analysts at JPMorgan Chase & Co.
Only a commitment by Spain to buy bad assets from lenders and manage them in a so-called bad bank will cure the ills of the country’s banking system, Maughan said.
In addition to Madrid-based Bankia, nationalized lenders that need support include CatalunyaCaixa and Banco de Valencia, seized last year. The IMF’s report said some former savings banks that haven’t taken government money, as well as medium and small private sector banks, may post losses this year after provisioning for bad loans.