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Audit shows Spain banks need $76.3B

Barry Hatton, Associated Press

A woman leaves the doorway of a Basque Bank, closed during a general strike in the Basque Country and Navarra Province, against austerity measures by the Spanish Government, in San Sebastian, northern Spain, Wednesday, Sept. 26, 2012. (AP Photo/Alvaro Barrientos)

MADRID (AP) -- Spain's troubled banks need an extra €59.3 billion ($76.3 billion) to survive a serious economic downturn, according to an independent audit released Friday by the Bank of Spain.

The stress tests' findings will help Spain decide how much it will use of the €100 billion loan facility offered by the 16 euro countries.

Spain's banks have been struggling under the weight of bad loans and failed building projects stemming from the collapse of the country's property market in 2008. Saddled with these toxic assets, the country's banks have been reluctant to loan out more money to businesses and households, stunting the economy. The European loan facility is to be used to cover these bad loans and shortfalls, thereby freeing up the banks to do business again.

Spain is at the center of Europe's financial crisis— its €1.4 trillion ($1.8 trillion) economy is the fourth-largest among the 17 countries that use the euro. Besides its shaky banking sector, the country is struggling to support its heavily indebted regional governments. The banking audit came a day after Spain outlined 2013 budget savings of €40 billion and other austerity measures to convince financial markets and international lenders it is on track to reduce its bloated deficit.

Friday's figures, compiled by consultants Oliver Wyman, do not include the impact of planned mergers between some of the banks in the audit or taxation. Including those two elements, the shortfall drops to €53.7 billion, the Bank of Spain said.

Bank of Spain deputy governor Fernando Restoy said some 400 auditors went through the books of 14 lenders — about 90 percent of the Spanish banking system — analyzing their capital cushions under adverse scenarios.

"We wanted (the tests) to be the toughest ever," he said.

The audit showed seven lenders failed the stress tests. Bankia, one of Spain's largest banks, was the worst case. Back in May, Bankia said it would need €19 billion in extra capital — it will now need to take €24.7 billion.

Spain's three top banks — Santander, BBVA and CaixaBank — were not among those in need of help.

Restoy added that lenders needing to shore up their capital will have to tell the government whether they need the public aid or intend to raise their own funds.

Speaking to reporters, Deputy Economy Minister Fernando Jimenez Latorre said he expected the aid sought will amount to around €40 billion in the end.

International Monetary Fund Managing Director Christine Lagarde said the audit "will contribute to build a sounder banking system, which in time will help to restart credit flows and boost growth and employment."

Jean-Claude Juncker, head of the eurozone's group of finance ministers, said he was "comforted" by the results, saying the €100 billion earmarked to help Spanish lenders "should be more than adequate" for their capital needs.

The agreed aid "should ensure that the recapitalisation process of banks can proceed efficiently and in accordance with previously agreed timelines," Juncker said in a statement.

In addition to the bank aid, Spain has come under pressure to take up the ECB on its offer to buy unlimited amounts of government bonds to help lower borrowing costs for countries struggling to manage their debts. Such large-scale purchases of short-term government bonds would drive up their price and push down their interest rate and take some pressure off of financially stressed governments such as Spain.

To get help from the ECB, Spain must first ask for government assistance from the rest of the eurozone. So far, Madrid has been reluctant to ask for fear of the conditions the other countries will attach to its aid. Analysts say the Spanish government hopes Thursday's budget measures will be enough to stop the eurozone from imposing further spending and deficit controls if and when Spain asks for help.

The country's austerity cuts have been extremely painful for a nation with an unemployment rate of nearly 25 percent, the highest in the eurozone. Protesters twice this week demonstrated outside Parliament and clashed with riot police who barricaded off the area.

Another big protest is scheduled for Saturday in Madrid.


Hatton contributed from Lisbon