Spain bank sector scrutinized

Inspectors from the European Central Bank (ECB) and the European Commission on Friday said that Spain has made considerable progress in reforming its banking sector. The inspectors published their assessment after an October 15-26 monitoring mission in the southern European nation.

The inspection was agreed in a memorandum of understanding between the Commission and Spain in July as a required step for the country to qualify for a bailout of up to 100 billion euros ($129 billion) for its struggling banks.

"Overall, the findings of this mission point to a successful program whose implementation is on track," the inspectors said in a statement. However, they warned that, though general funding strains have been reduced, the challenges to some Spanish banks remain very acute and warrant further policy action.

Acid loans to be 'removed'

The International Monetary Fund also acknowledged that Spain has met all deadlines under its deal for support from the European Union, but added that "it will be important to maintain the momentum as challenging steps lie ahead."

The IMF in particular lauded Spain's stress tests of the banks that had been hit by the collapse of the mortgage market, saying they provided a sound basis for identifying real recapitalization needs. It also noted new consumer protection and securities legislation as a step towards a better regulatory framework.

The ECB, the EU and Madrid reached an agreement on the design and functioning of Spain's future bad-bank or asset management company, which is to absorb ailing lenders' risky assets. The company is scheduled to become operational on December 1.

hg/mkg (Reuters, AFP)