It has been a torrid twelve months for the Spanish banking and financial system but it is starting to get better, according to leading Spanish equity fund managers.
The Spanish Central Bank last year created the Bank Restructuring Fund for Orderly Bank Restructuring (FROB). This fund can potentially deploy up to €99 billion, if Spain can raise that money on international markets. This coupled with the ECB announcing stress tests for the regions banks goes some way in deplaying confidence across the region.
Traditionally, a number of commercial banks have shared banking space in Spain with 45 unlisted regional saving banks locally known as cajas. These cajas have evolved into offering financial services while their legal status remained as private enterprises, this has made it difficult for them throughout the financial crisis, putting strain on the larger banks.
In spite of some individual success stories from the cajas, such as leading savings bank La Caixa, for many experts the cajas as a whole have been dragged down by two major handicaps: their lack of presence outside of their respective regions and interference in their businesses by their local regional governments. This is why the situation in spain would appear to get worse before it gets better.
The financial crisis has hit Spain’s economy, as well as the popular real estate sector hard. With some 1.2 million of unsold properties and a youth unemployment rate of 40.5%, the downturn has had an enormous impact on the property, banking and financial system. Ultimately, it has forced many of the cajas into a race against time to save themselves from bankruptcy.
At the same time, the Spanish central bank, Banco de España, and the government are unofficially forcing the weaker cajas to merge. The scale of the challenge is such that the Banco de España last month published a report outlining a plan to ensure the national financial system remains resilient, despite the negative effect of doubtful assets in the residential property sector.
It could be some time before Spain regains ground on the rest of Europe, but at least the banking sector can see light at the end of the tunnel.
If you would like more information about your finances in Spain, or are thinking of moving there, please visit www.wealthandlivingmagazine.com for more information.
