TRIBUNE NEWS NETWORK

DOHA IN spite of a recent breakthrough decision by the EU to boost their support for Spanish banks, the planned measures may not be sufficient.

Clarity on the bailout terms and a revival in the Spanish economy would be needed to put the banks on firmer ground, according to a QNB Group analysis.

The report pointed out that the weak economic and fiscal environment is aggravating the conditions in the banking sector. The Spanish housing market continues to collapse, with the recent housing index reading a decline by 8.3 percent year-on-year as at June 2012.

Along with this is high unemployment at 24 percent, a debt-to-GDP ratio at over 140 percent, and a fiscal deficit at 8.5 percent of GDP.

The group sees more efforts by the government in getting the economy back on a growth trajectory as a key driver to reverse the current banking system malaise.

The net borrowing of Spanish banks from the European Central Bank (ECB) reached a record level of €337bn in June 2012, a sevenfold increase compared to the year before. This excess originates primarily from the ECB’s decision to offer €1.1tn in two tranches during December 2011 and February 2012 to Euro-area banks at very low rates (1 percent). However, this injection of cheap funding proved to be insufficient. As a result, on June 9, the EU offered up to €100bn in additional support.

Then on June 29, it went further by agreeing to provide these funds directly to the banks, rather than via the already debt-laden Spanish government.

These rescue plans are just the beginning, according to QNB Group, as Spanish banks engage themselves in a long drawn process to clean up their balance sheets.

Spanish banks are still reeling under the pressure of toxic assets