Moody's warns Spanish govt over banking plans

14 May 2012

Prospective banking reforms being considered by the Spanish government could seriously damage the country's wider economic system.

That is according to Moody's Investors Service, which has today (14 May) warned policymakers in Madrid about the potential knock-on impact of certain plans that have been designed to stabilise its financial sector, the Wall Street Journal reports.

For instance, it emerged last Friday that banks are now required to set aside a combined total of around €30 billion ($39 billion) more to deal with the cost of bad loans in the future.

However, leading credit rating agency Moody's feels such moves could serve to increase the state's debt burden - while also undermining its credit standing - particularly if additional funds are needed in the near future.

"Including our base-case estimate, the general government debt ratio would surpass 90 per cent of gross domestic product (GDP) in 2014, nearly triple the low of 36 per cent of GDP in 2007," the body noted.

By Claire Archer

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