November 14, 2013 / 10:27 PM / 6 years ago

Spain to exit bank aid programme without additional funds

MADRID (Reuters) - Euro zone finance ministers agreed on Thursday to allow Spain to exit an aid programme for its banking sector in January without drawing more European funds.

Spain last year took 41 billion euros of a 100 billion euro package of aid to rescue a number of banks that were crippled by bad loans from the collapse of a property and construction bubble and to form a so-called bad bank to dispose of property and loans whose value has plunged.

The rescue came as Spain’s borrowing costs soared and the country struggled to avoid following Greece, Portugal and Ireland into a full bailout for government finances.

“The overall situation of the Spanish banking sector has significantly improved, including the access to funding markets of Spanish banks,” the Eurogroup of euro zone finance ministers said in a statement.

Ireland also chose on Thursday not to take emergency credit lines as it exits a full rescue for its public finances.

Spain’s government must still sell off three nationalised banks, and may yet have to put more money into those to make them attractive assets for investors.

Brussels will continue to monitor Spain’s banking system and public finances every six months until it has paid off 75 percent of the aid.

Spain has implemented stricter banking regulations, passed reforms to make its economy more competitive and taken steps to cut the public deficit - all as conditions for the bailout.

On Wednesday, Spain’s parliament created an Independent Fiscal Authority that will oversee budgets and the deficit, which was the last outstanding condition on the aid programme to be met.

Spain banks’ borrowing from the European Central Bank fell in October for the 14th month in a row, after spiking to record high last year at the height of the country’s financial crisis.

While Spain has fixed its damaged banks and has just emerged from its second recession in five years, it still faces huge economic challenges, including an unemployment rate of 25 percent.

Reporting by Fiona Ortiz; Editing by Mohammad Zargham

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