Spanish banks will need a total of 59.3 billion euros (US$76.3 billion) in extra capital to ride out a serious economic downturn, an independent report said on Friday, removing a major obstacle in the way of an international bailout for Madrid.
Spain said around 40 billion euros of the total would come as European aid while the rest could be raised by the banks themselves.
The audit, carried out by consultant Oliver Wyman, is a condition of getting European funds to patch up Spanish banks damaged by a prolonged real-estate crash, and identifies which banks need more capital and precisely how much each requires.
Spain has agreed a credit line that could provide up to 100 billion euros in EU rescue funds for its banks.
Both the strict budget for next year presented by the government of Spanish Prime Minister Mariano Rajoy on Thursday and the audit of 90 percent of Spain’s banking system are necessary steps for Madrid to request sovereign aid and trigger a European Central Bank (ECB) bond-buying program.
The “adverse economic scenario” the audit was based on is fast becoming reality in Spain as spending cuts and tax hikes throttle any recovery in the eurozone’s fourth-largest economy, driving up unemployment and prompting growing unrest.
The audit results were in line with market expectations and were applauded by the European Commission, the ECB and the IMF.
“That’s another layer of uncertainty that’s off the table,” said David Schnautz, rate strategist at Commerzbank. “We got the budget yesterday and today the stress tests and now we’re all keen to hear what the ratings agencies’ view will be.”
Credit rating agency Moody’s is due to review Spain’s debt grade before tomorrow. It currently has Spain on one notch above junk with a negative outlook.
The audit identified the bulk of capital needs at the four banks which have already been rescued by the Spanish government.
The worst case is Bankia, the result of an ill-fated, seven-way merger between unlisted savings banks which was taken over by the government earlier this year.
The capital shortfall for these banks is 49 billion euros, with Bankia accounting for half of that. The European Commission said the exact aid needed for each bank would be determined in the coming months.
More than 60 percent of the system, including heavyweights Santander, BBVA and Caixabank, did not need extra capital under the terms of the audit.