Spain's banks 'need more cash' to cover property losses

A report due to be released next week is expected to suggest Spain's banks require an additional €40 billion (£32.3 billion).

Reuters released details of the study by the International Monetary Fund (IMF), which also predicts, in total, €90 billion will need to be spent by the banks and the government to get the Spanish financial sector back on its feet.

A source told the news provider the calculation of the shortfall accounted for some of the country's financial institutions being able to cover losses using their own funds.

The issues with capitalisation in the banking system stem largely from bad loans on Spanish real estate, with one European Union official explaining things are unlikely to improve in the coming months.

Speaking to Reuters, the official commented: "You've got bad property loans that still haven't flowed through the system and you have a recession. All the banks' balance sheets are going to be under increased pressure in the months ahead."

Last week, deputy managing director of the IMF Nemat Shafik told the Brussels Economic Forum that the EU should focus on creating a banking union to provide regulation of the sector, as well as a deposit guarantee scheme and a bank resolution framework.

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