BRUSSELS (MNI) – Bankia, Spain’s banking conglomerate nationalised
by the Spanish state after a E4.3 billion loss in May, will be restored
to health and should not be closed, Spain’s Economy Minister Luis De
Guindos said on Monday.

“Bankia should not be closed,” de Guindos told members of the
European Parliament’s Economic and Monetary Affairs Committee. “Bankia,
after the transfer of their toxic assets to the bad bank, and after
receiving the capital injection that will be done over the next two
weeks, will be a healthy institution, very important for the banking
landscape in Spain.”

Bankia, which was formed in 2010 from the merger of seven Spanish
regional savings banks including Caja Madrid and Bancaja, may have an
immediate “solvency problem” but it benefits from a “strong franchise,”
de Guindos said.

De Guindos’ comments come as the European Commission studies the
compatibility of Spain’s bank restructuring plans with the EU’s
competition and bank rescue policies, which call for non-viable banks to
be wound down.

The Spanish minister argued that Spain’s banking system was in a
better position than generally perceived. Spanish banks have aggregate
provisions against bad loans of close to 20% of Spain’s GDP and are set
to be recapitalised with E40 billion of Eurozone funds – equivalent to
3.5% of GDP. This recapitalization cost is “not as much as in other
countries or as was forecast six to seven months ago,” he said.

De Guindos praised the European Central Bank’s Outright Monetary
Transactions (OMT) programme for “clearing up doubts about the future of
the euro,” but he said that Spain’s borrowing costs are still
unjustifiably high. Spain’s economic fundamentals call for a 200
basis-point spread above German Bunds, he argued.

Although De Guindos declined to comment on whether Spain would seek
a Eurozone programme that could trigger ECB intervention in the
secondary market for Spanish government bonds, he said he believed a 100
basis point reduction in borrowing costs would boost Spanish growth by
half a percentage point.

–Brussels Newsroom, +324-952-28374; pkoh@mni-news.com

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