Spanish banks 'need €40 billion' as eurozone ministers prepare for talks

    Just Watched

    Eurozone talks amid Spain bank crisis

Eurozone talks amid Spain bank crisis 03:45

Story highlights

  • Eurozone finance ministers to hold conference call Saturday
  • IMF says Spanish banks need at least 40 billion euros to preserve Spain's stability
  • It recommends that more capital be set aside for the most vulnerable banks
  • The IMF assessment is roughly in line with that of ratings agency Fitch

Eurozone finance ministers will hold a conference call Saturday as concerns grow over the state of Spain's ailing banking sector.

The talks come a day after the International Monetary Fund said Spain's banks need at least 40 billion euros (about $46 billion) in fresh capital to preserve the country's financial stability.

Spain's vicious cycle

An IMF mission visited Spain and conducted "stress tests" on banks. In its report, released Friday, the IMF recommended that considerably more capital be set aside for the country's most vulnerable banks to cover "restructuring costs and reclassification of loans."

The Spanish government and the Council of the European Union both denied that Spain had already requested aid for its struggling banks.

Spain in eurozone crisis crosshairs

The IMF's executive board emphasized that bank stress tests did not attempt to represent the full scope of capital needs. That could take the total required to between 60 billion and 80 billion euros, according to IMF officials.

      Just Watched

      Lagarde: Spain needs a backstop

    Lagarde: Spain needs a backstop 02:55

      Just Watched

      Spain: Bailout or bailout 'lite'

    Spain: Bailout or bailout 'lite' 01:48

      Just Watched

      Spain: Banks on the brink

    Spain: Banks on the brink 02:33

      Just Watched

      Jobless Spaniards moving abroad

    Jobless Spaniards moving abroad 02:47

    The IMF assessment -- roughly in line with that of ratings agency Fitch -- came on the eve of critical talks between the Spanish government and European institutions over the terms of aid to Spanish banks, which are saddled with bad debt, much of it property-related.

    Spain's deputy prime minister, Soraya Saenz de Santamaria, said Friday the government was awaiting the IMF report before taking a decision on its next steps.

    Other investment banks have estimated the needs of Spanish banks at in excess of 100 billion euros.

    "The extent and persistence of the economic deterioration may imply further bank losses," said Ceyla Pazarbasioglu, head of the IMF team that conducted a recent visit to Spain.

    "Full implementation of reforms, as well as establishing a credible public backstop, are critical for preserving financial stability going forward."

    The IMF said that while the core of Spain's financial sector is well managed, "important vulnerabilities remain in the system."

    Spain's youth: Why is there money for banks and not us?

    Successive Spanish governments have taken action to consolidate banks, creating the fourth largest -- Bankia -- out of a number of failing financial institutions. But late last month, Bankia sought a further 19 billion euros in capital to shore up its balance sheet.

    One analyst told CNN that the Spanish authorities had "run out of ammunition" in their efforts to recapitalize banks, with the government's own borrowing costs rising to about 6.5% for the 10-year sovereign bond in recent days. The analyst did not want to be named because of his close connection to the government.

    A yield of 7% is widely regarded as unsustainable, and has led other EU states such as Ireland and Portugal to seek European and IMF assistance.

    Fitch cut Spain's sovereign credit rating by three notches Thursday.

    Pain in Spain threatens eurozone

    One issue that has unnerved markets is the difficulty in assessing the strength of Spanish banks because of what the IMF report calls "their differences in management quality and risk management philosophies."

      Just Watched

      Spain minister: No bailout needed

    Spain minister: No bailout needed 03:06

      Just Watched

      Wade: Spain will eventually need bailout

    Wade: Spain will eventually need bailout 04:09

    Larger banks such as Banco Santander and BBVA are regarded as sufficiently diversified and robust to avoid further injections of capital.

    But the IMF noted that "in recent years, a gradual approach to taking corrective action allowed weak banks to continue to operate to the detriment of financial stability."

    Merkel insists on two-speed Europe

    The impact of the global financial crisis, which caused a severe recession and soaring unemployment in Spain, exposed weaker banks with large portfolios of bad debt.

    But the IMF says "some of the weak entities were merged into larger but still weak ones, while delays in taking corrective action meant that vulnerabilities were not addressed or were allowed to grow."

    The governor of the European Central Bank, Mario Draghi, has made similar criticisms in the past week.

    Financial analysts say instilling confidence into the Spanish banking system is urgently needed to prevent troubles affecting Greece from spilling over, as markets question the viability of the eurozone, which has 17 members.

        Europe's financial crisis

      • German Chancellor Angela Merkel talks with Finance Minister Wolfgang Schaeuble during a session at the Bundestag (lower house of parliament) on June 25, 2013 in Berlin.

        German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
      • IBIZA, SPAIN - AUGUST 21:  A man dives into the sea in Cala Salada beach on August 21, 2013 in Ibiza, Spain. The small island of Ibiza lies within the Balearics islands, off the coast of Spain. For many years Ibiza has had a reputation as a party destination. Each year thousands of young people gather to enjoy not only the hot weather and the beaches but also the array of clubs with international DJ's playing to vast audiences. Ibiza has also gained a reputation for drugs and concerns are now growing that the taking and trafficking of drugs is spiralling out of control.  (Photo by David Ramos/Getty Images)

        Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
      • The Euro logo is seen in front of the European Central bank ECB prior to the press conference following the meeting of the Governing Council in Frankfurt/Main, Germany, on April 4, 2013.

        The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
      • The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.

        The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
      • Packed beaches and Brit pubs? Not necessarily. Here's what drew travelers to one of Spain's most beautiful regions in the first place

        Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
      • Photographer TTeixeira captured these images from a May Day protest in Porto, Portugal, Wednesday by demonstrators angered by economic austerity measures. "People protested with great order, but showed discontent against the government who they blame for this economic crisis," she said. "They want the government to resign and the Troika [European Commission, International Monetary Fund and European Central Bank] out of this country."

        As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
      • Croatian Prime Minister Zoran Milanovic delivers a speech in Mostar, on April 9, 2013. Prime Ministers from Bosnia's neighboring countries arrived in Bosnia with their delegations to attend the opening ceremony of "Mostar 2013 Trade Fair".

        As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
      • Anti-eviction activists and members of the Platform for Mortgage Victims (PAH) take part in a protest against the government's eviction laws in front of the Popular Party (PP) headquarters in Mallorca on April 23, 2013.

        Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
      • People protest against the Spanish laws on house evictions outside the Spanish parliament on February 12, 2013 in Madrid, Spain.

        Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.