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Spain to release bank audits after austerity cuts

Dunya News

Spain's largest international banks are not expected to need funding.

Spain is set to reveal how much trouble its banking system is in when it releases the results of audits of 14 lenders Friday.The stress tests findings will help the country decide how much money it will tap from a €100 billion ($128 billion) European loan facility to prop up its financial sector.Spains largest international banks are not expected to need funding. However, many of the countrys regional lenders, which are struggling with assets that went toxic after a crash in Spains property market, are expected to need help.Rating agency Moodys Investor Services is also expected to issue a report Friday that some analysts believe will reduce Spanish bonds to junk status.Fridays audit results, expected in the evening after European markets close, will come a day after Spain outlined plans to cut spending and raise taxes. The governments 2013 budget was drawn up to convince financial markets it is on track to reduce its bloated deficit. Finance Minister Cristobal Montoro said Thursday Spains draft budget for 2013 would cut overall spending by €40 billion ($51 billion).Many analysts believe Thursdays budget is part of preparations for another financial lifeline to help the country reduce its high borrowing costs.Spain is under pressure to take up the European Central on its offer to buy unlimited amounts of government bonds to help lower borrowing costs for countries struggling to manage their debts. Such large-scale purchases of short-term government bonds would drive up their price and push down their interest rate and take some pressure off of financially stressed governments such as Spain.Spain is at the center of the eurozone crisis its €1.4 trillion ($1.8 trillion) economy is the fourth-largest among the 17 countries that use the euro.The country is struggling to prop up its shaky banking sector and support its heavily indebted regional governments. It has already introduced several packages of tax hikes, civil servant wage cuts and freezes in a bid to get out of the crisis.To get help from the ECB, Spain must first ask for assistance from the rest of the eurozone. So far, the government has been reluctant to ask for fear of the conditions the other countries will attach to its aid. Analysts say the Spanish government hopes Thursdays budget measures will be enough to stop the eurozone from imposing.Spanish stocks were up 0.6 percent on the countrys benchmark stock index late Friday morning. The interest rate, or yield, on the nations benchmark 10-year bond stood at 5.94 percent.The countrys austerity cuts have been extremely painful for a nation with an unemployment rate of nearly 25 percent, the highest in the eurozone. Protesters this week twice this week demonstrated outside Parliament and clashed with riot police who barricaded off the area.Another big protest is scheduled for Saturday in Madrid, and union members will also demonstrate in Portugal over austerity-driven pay cuts and tax hikes.