Safeguarding against default

Spain's biggest lenders agreed to billions of euros in provisions they would set aside to protect against default risks. Spanish bank BBVA announced on Monday it would come up with an additional 1.8 billion euros ($2.3 billion) to cover risks to loans it had made to the real-estate sector.

Santander, which is the biggest eurozone bank by market capitalization, said it would provide an extra 2.7 billion euros, with the partly nationalized Banka and CaixaBank also making additional provisions to the same end.

The announcements came in response to a government reform last Friday which asked Spanish banks most exposed to bad loans to set aside a new 30-billion-euro cushion and to remove risky property assets from their accounts. The new provisions will come on top of the 53.8 billion euros the banks were told to come up with to comply with reforms announced in February 2012.

Market confidence still down

"A prompt and profound reform of the banking sector is a cornerstone of Spain's crisis response and its overall reform strategy," EU Economic Affairs Commissioner Olli Rehn said in a statement.

But all efforts to fix the banking sector in the country have failed to completely allay concerns about the burden of the clean-up on Spain's public finances. This is why the country was forced to offer high premiums to sell short-term debt on Monday.

But the bigger test will come on Thursday when Spain is set to sell three and four-year bonds. It will have to rely on domestic buyers in that auction, with foreign investors put off by concerns about the country's long-term stability.

hg/gb (AFP, Reuters)