Spain says stricken banks need 59 bn euros

Releasing an audit of the banking system, the Spanish government said lenders may only need to borrow 40 billion euros from the eurozone, far below the maximum on offer of 100 billion euros.

The audit of the top 14 banking groups, warmly welcomed by the European Union and International Monetary Fund, is seen on the markets as one of the final acts before Madrid likely requests a sovereign bailout.

"The loan is likely to be added to Spain\'s national debt making them liable if the banks are unable to repay, so the reaction in the market is more one of relief than anything else," said London-based Alpari analyst Craig Erlam.

"The next hurdle is the bailout which at this point appears to be inevitable," he said.

The independent audit led by US financial consultants Oliver Wyman showed Spain\'s banks need to raise 59.3 billion euros.

That would decline to 53.75 billion euros once mergers under way and tax effects are taken into account, the report said.

Banks can find much of the money from other sources, such as asset sales, private capital, losses forced on investors or by selling bad loans to a so-called bad bank to be set up to hold such assets, it said.

The final amount borrowed from the eurozone could thus be about one-third lower, or "about 40 billion euros," junior economy minster Fernando Jimenez Latorre told a news conference.

The figures reflect the depth of the damage from a 2008 property market crash that left Spanish banks staggering under mountains of bad loans, resulting in a credit shortage in the Spanish economy.

Seven of the banks, which include Santander, the biggest in the eurozone by market value, had no need of extra money to survive a "very adverse scenario" with three years of heavy losses, it said.

"The results confirm that the Spanish banking sector is mostly solvent and viable, even in an extremely adverse and highly unlikely macroeconomic setting," the report said.

Of 14 banking groups examined, which account for about 90 percent of the financial system\'s assets, rescued lender Bankia had the greatest capital needs, estimated at 24.7 billion euros.

Others were Catalunyabank needing 10.8 billion euros; NCG Banco 7.2 billion euros; Banco de Valencia 3.5 billion euros; Banco Popular 3.2 billion euros; BMN 2.2 billion euros; and Ibercaja, Caja3 and Liberbank combined 2.1 billion euros.

The banks can receive the European funds once their recapitalisation plans are approved, and then "the process of cleaning up, restructuring and capitalising the Spanish financial sector will be completed," Jimenez said.

The audit came a day after Spain announced a tight budget for 2013, which squeezes out 39 billion euros in austerity measures, sparing only retirement pensions, to rein in the public deficit.

Jean-Claude Juncker, head of the group of eurozone finance ministers, said he was "comforted" by the result of the audit, which showed the eurozone loan would be "more than adequate".

IMF managing director Christine Lagarde agreed, saying the capital needs "can be financed comfortably" with the eurozone bailout.

The rescue loan is to be funnelled through Spain\'s state-backed Fund for Orderly Bank Restructuring (FROB).

But Spain\'s government had hoped that a new European Stability Mechanism would eventually be empowered by Brussels to inject funds directly into banks, keeping the debt off Madrid\'s books.

A June summit of European leaders allowed the ESM to take such action, but only once a single EU banking supervisor is set up and the year-end target date is looking increasingly unlikely to be met.

Moreover on Tuesday, Germany, the Netherlands and Finland laid down a series of new conditions, saying that the ESM should only act on new bank failures and not take over current or previous bailouts.

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