AN INDEPENDENT AUDIT of the strength of Spain’s banking sector has found that seven banks will need a collective bailout of almost €60 billion in order to cope with possible defaults from the country’s property crash.

An official report published by Spain’s central bank this evening said that as of last December, seven of the country’s 14 major banks would need €59.3 billion in extra recapitalisation in order to survive any wave of mortgage difficulties.

The funding needs fall to about €53.75 billion when the figure is adjusted for bank restructuring that has already begun, and the tax effects are considered. That figure billion is a ‘worst case scenario’ figure, with the audit finding finding that the banks would need €25.9 billion in a ‘baseline’ scenario.

The seven banks which will require funding account for about 38 per cent of the entire Spanish banking market. Bankia, the bank in the worst state, would need €24.7 billion in the ‘worst case scenario’ projection, carried out by Oliver Wyman.

“It is important to point out that the capital needs identified in the exercise do not represent the final figure of State aid to banks,” the Central Bank said in a statement this evening.

“This aid may be significantly less, as it will be determined once the measures envisaged in the recapitalisation plans to be submitted by banks to the Banco de España
in October are taken into account,” it said.

The European Banking Authority welcomed the results, saying they were “a major step towards strengthening and restoring the soundness of the Spanish banking system”.

It added that restoring health to the Spanish system was “ultimately crucial for a sustained recovery of economic growth”.

The publication of the results had been keenly awaited around Europe, as the price of repairing the banks was seen as a key measure of whether Spain would be able to foot the bill itself, or whether it would require European bailout funds to do so.

Ireland is to contribute just under 1.6 per cent of any cash accessed from the European Stability Mechanism – meaning if Spain was to ask for a European bailout of €53.75 billion, Ireland would be asked to contribute about €856 million.