IMF encourages Spain to move forward on banking reforms

imagesThe International Monetary Fund said on Monday that Spain has made “major progress” in ensuring the recovery of its struggling banking sector but added that the nation must push forward with necessary reforms.

After its second review of a European Union-sponsored bailout of Spanish banks, the IMF said that “risks to the [Spanish] economy and hence to the financial sector remain elevated,” adding that the introduction of new capital will increase confidence in the banking industry and allow banks to resume lending activities, according to The Wall Street Journal.

Spain has borrowed $53 billion, most of which has been provided to banks, from a $136 billion credit line obtained from the EU in return for the restructuring of its banking program. The IMF, the bailout’s technical adviser, will provide Spanish and EU officials with more information in March. The remaining money from the credit line will be provided after subordinated debt is converted into equity, a process urged by the IMF.

The IMF said that “important progress” has been made in establishing a bank that is scheduled to take over failing real-estate assets of banks receiving government aid, though the bank still needs to release a “comprehensive long-term business plan,” The Wall Street Journal reports.

The IMF also said that Spain should diligently monitor the health of its financial system as it faces “a difficult process of fiscal and external adjustment,” according to The Wall Street Journal.

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