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DEBT

Spanish bank debt to ECB hits new low

Debt owed by Spanish banks to the European Central Bank fell again in November to its lowest level since February 2012, Bank of Spain data showed on Friday.

Spanish bank debt to ECB hits new low
Spanish banks were almost shut out of international debt markets last year owing to concerns that the country may need a sovereign bailout. Photo: fotouiscmg/Flickr

Net debt to the ECB totalled €220.5 billion($303.7 billion) last month, a 35.3 percent drop from the level 12 months ago, the central bank said, a sign that Spanish banks were finding it easier to raise funds on the debt market. 

It was the lowest amount since February 2012 when Spanish banks owed 152.4 billion euros to the ECB, and well below the peak of €388.7 billion owed in August 2012. 

But the amount is still almost double the €118.9 billion owed at the end of 2011. 

Spanish banks were almost shut out of international debt markets last year owing to concerns that the country may need a sovereign bailout. 

Concern centered on bank balance sheets, which are loaded with piles of bad loans following the collapse of a property bubble in 2008. 

But Spanish borrowing from the ECB has fallen steadily since the central bank chief Mario Draghi vowed last year to buy sovereign debt of eurozone countries that had officially requested aid. 

Madrid secured a rescue loan in June 2012 of up to €100 billion from its eurozone partners to underpin Spanish banks. 

Spain, the eurozone's fourth-largest economy, used €41.3 billion of this available loan. 

The latest official figures show Spain timidly emerged from a two-year recession in the third quarter of this year, but the unemployment rate remains extremely high at nearly 26 percent. 

The government predicts the economy will expand by 0.7 percent in 2014 after shrinking by 1.3 per cent in 2013.

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MOODY'S

Spain’s debt rating raised again on growth hopes

Ratings agency Moody's on Friday raised Spain's sovereign debt grade, citing improved growth prospects and a stronger banking sector.

Spain's debt rating raised again on growth hopes
An aerial shot of Madrid's financial district on Paseo de la Castellana. Photo: Enrique Dans/Flickr
The upgrade reflects the government's steps to “address the weaknesses in the banking sector” and an “increasingly balanced growth profile,” despite remaining “institutional weaknesses,” the agency said in a statement.
   
The agency moved the debt rating up a notch to the upper-medium investment grade Baa1 and said the rating outlook remained stable. The decision follows similar moves by Fitch and S&P Global earlier this year. Spain was downgraded in 2012 by all major ratings agencies amid fears Madrid could require a bailout due to the weakness of its banks.
   
Spanish Prime Minister Mariano Rajoy welcomed the fourth debt upgrade, saying that thanks to the governments reforms and “the efforts of all Spaniards, confidence in Spain has increased.”
   
“We cannot stop now,” Rajoy said on Twitter.
   
According to Moody's, the political crisis in Catalonia province, which has sought to secede from Spain, has “abated somewhat” and has so far not harmed Spain's fiscal or economic performance.
   
“While we expect political tensions between the central government and pro-independence forces in Catalunya to remain elevated for the foreseeable future, our baseline is still that Catalunya will remain part of Spain,” 
Moody's said. Catalonia accounts for 20 percent of Spanish GDP. 
 
The Spanish government's difficulties in setting a budget, which were due in part to the crisis with Catalonia, should not cause a “negative policy shift” in the coming years, the statement said.
   
High economic growth of three percent in recent years should moderate towards 1.5 to two percent in the medium term, it said.
   
Spanish banks' stock of non-performing loans has been falling steadily since late 2013, hitting 7.4 percent as of the end of 2017, down from 12.9 percent four years earlier.