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European Union

Spanish banks highlighted in EBA stress tests

Reuters/Albert Gea

Five Spanish banks have failed strict new European stress tests to see if they can survive a major crisis. But the government and Bank of Spain has dismissed the much-vaunted test, saying none of the banks need extra money.

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A total of eight banks, including one from Greece and one from Germany, were pinpointed by the European Banking Authority exam.

Of the five Spanish banks, four were regional savings banks - Caja Mediterraneo, CatalunyaCaixa, Unnim and CajaTres –while the fifth was medium-sized retail bank Banco Pastor.

Dossier: Eurozone in crisis

The Spanish government also criticised the tests for failing to take into account huge provisions made by Spanish institutions to fend off just such a crisis. Finance Minister Elena Salgado said the tests had failed to take account of 27 billion euros in provisions for bad times made by Spanish banks as of the end of March.

Seven other banks only just achieved the bare minimum requirement of rock solid core Tier One capital ratio of 5.0 percent of total assets. These were Banco Sabadell, Banco Popular and Bankinter and the savings banks Novacaixagalicia, Caja Ontinyent, Banca Civica, Bankia.

Spain's lenders, especially its regional savings banks which account for about half of all lending in the country, have been heavily exposed to bad debt since the collapse of the property sector at the end of 2008.

The government and Bank of Spain have forced a wave of consolidation in the sector and are requiring banks to quickly increase the proportion of core capital they hold to above international norms.

The European tests assessed 91 banks representing 65 per cent of the sector across Europe. A total of 25 of them were Spanish, more than any other country.

The London-based European banking authority said the eight European banks that failed the tests together needed an injection of 2.5 billion euros to meet the tougher capital requirements.

The new tests are designed to combat criticism over last year's banking sector review which found that just seven out of the 91 European banks inspected were vulnerable to economic stress.

 

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