Spain to seek first bailout for ailing banks

Spain’s government said Friday it would soon request a first payment for its deeply troubled banks from an emergency eurozone rescue line. “The request will be sent shortly,” a spokeswoman for the Economy Ministry told AFP. “It is being worked on,” she said, declining, however, to specify the timing or exact amount of the request. The money was being sought for crisis-torn Spanish banks that have already been nationalized, she said: Bankia, Catalunya Caixa, NovaGalicia Banco and Banco de Valencia. “The Bank of Spain has to ask that the funds be made available to it and that is the request that will be sent,” the spokeswoman said. “The Bank of Spain is doing its analysis and that report is for the nationalized banks, so depending on that analysis they will see what request they need to make,” she said. Spain’s eurozone partners agreed in June to lend up to 100 billion euros ($124 billion) to salvage the nation’s banks, buckling under record bad loans built up since a 2008 property crash. The eurozone’s bailout fund, the European Financial Stability Facility, has already put aside an emergency reserve of 30 billion euros in case of urgent requests by Spain, a spokeswoman for the fund said. Under a written agreement drawn up last month, the Bank of Spain can ask for a specific sum from that emergency reserve. But any payment first needs the approval of the European Commission and officials of the 17-nation eurozone working in liaison with the European Central Bank. The bulk of the rescue loan is expected to be disbursed from November onward to help finance a restructuring and recapitalization of the Spanish banking sector. Spanish lenders’ bad loans leapt to a record high level in June, latest figures showed Friday. The value of doubtful loans jumped to 164.36 billion euros in June, equal to an unprecedented 9.42 of the banks’ total loan portfolio, the Bank of Spain said. Up sharply from a share of 8.96 percent of total loans in May, it was the highest bad loan ratio recorded since the central bank began compiling the data. As Spain awaits the first payment for its banks, the nation’s troubles seem to be mounting. The economy is in a recession, which the government expects to drag on through 2013, and the unemployment rate is near 25 percent – the highest in the industrialized world. At the same time, Madrid is slashing spending and raising taxes in a battle to rein in its bulging public deficit. Despite those efforts, Spain’s finances are under rising pressure as wary investors demand painfully high interest rates to lend to the country by buying its sovereign bonds. The yield offered on Spanish 10-year government bonds was about 6.45 percent on the debt market Friday. Although that is sharply down from levels of more than 7 percent in previous weeks, the rate is still considered too high for the Spanish government to afford over the longer term.