Spain warns on bank capital

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Spain warns on bank capital

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The head of Spain’s central bank is warning the country’s lenders may need to raise more capital if the economy deteriorates.

Miguel Angel Fernandez Ordonez’s comments reflect growing concerns that some Spanish banks might not survive the recession there which may be made worse by the government’s austerity drive.

Having been hit hard by the bursting of the country’s property bubble the banks are now seeing a surge in loan defaults in other sectors.

The central bank governor said a recent reform might solve bank’s problems but nevertheless raised the idea they might need more capital.

“If the Spanish economy finally recovers, what has been done will be enough, but if the economy worsens more than expected, it will be necessary to continue increasing and improving capital as necessary in order to have solid entities,” Ordonez told a Madrid conference.

The economy is forecast to contract by 1.7 percent this year but is likely to deteriorate further as the government slashes 27 billion euros from the central budget, and billions more from spending in the country’s 17 autonomous regions.

Ordonez said it was unlikely the country would experience a strong recovery in the short-term and called for better competitiveness to generate budget surpluses.

“The solutions to the crisis, which came from excessive debt or loss of competitiveness, are very slow within a monetary union and that is why we can’t afford to become complacent,” he said.

Spain’s banking sector, burdened with debt taken on during a decade-long housing boom that collapsed in 2007-2008, is undergoing a third wave of consolidation, which aims to cut the number of players to less than a dozen from about 40.