Banking reform in Spain on track: IMF

MADRID - Agence France-Presse

The International Monetary Fund (IMF) says Spanish banks are in better shape than last year but warns of risks still waiting ahead.

Spain’s bad-loan ridden banks, which were thrown a 41.3-billion-euro ($53-billion) European lifeline last year, are stronger but still face high risks, the IMF warned in a staff report has released.

“Implementation of Spain’s financial sector program remains on track,” the International Monetary Fund said on July 15 in its third report following a May 21-31 visit to Madrid.

The reports form part of the surveillance by the troika of the European Union, European Central Bank and Washington-based IMF to check Spain’s compliance with conditions imposed in July 2012 in return for the banking rescue loan.

The Fund welcomed the creation of a bad bank, Sareb, charged with taking on the stricken banks’ toxic assets at a heavy discount and then trying to sell them at a profit.

“Actions to recapitalise parts of the banking sector and the asset transfers to Sareb have provided an important boost to the system’s liquidity and solvency,” it said.

“Notwithstanding this progress, risks to the economy and hence to the financial sector remain elevated,” the report said.

It cited Spain’s need to correct its budget deficit, reduce the high level of private debt and cope with sliding real estate prices.

“Risks to the financial sector arising from the difficult economic environment still loom large, requiring continued action to safeguard the program’s gains and better support economic recovery,” the IMF said of Spain, the eurozone’s fourth-largest economy, which has been in recession since mid-2011.