The International Monetary Fund said Friday that Spain had made "important progress" in reforming its financial sector, meeting all deadlines under its deal for support from the European Union.
"All deadlines established in the Memorandum of Understanding, agreed between the Spanish and European authorities, have been met. It will be important to maintain the momentum as challenging steps lie ahead," the IMF said.
In a report on its first mission to monitor the banking reforms, a role the IMF took on under the July deal for the EU to help Spain recapitalize its banks, the global lender said Spain had moved ahead in five key areas:
- Madrid's position in financial markets has improved.
- "Robust" stress tests of the banks have been performed, providing a sound basis for identifying which banks need help.
- The main outlines of an Asset Management Company have been laid out, though Spain has to move forward to get it working by the deadline at the end of November.
- A new law on burden sharing and resolution is a "significant achievement".
- New consumer protection and securities legislation marks real progress in developing a better regulatory framework.
More needs to be done, the IMF said.
Banks' capital shortfalls "need to be quickly made up, recently created burden-sharing tools applied, and non-viable banks promptly wound down.
"New mergers that do not clearly generate value and undue constraints on system-wide credit supply should be avoided."
In Brussels, the EU and European Central Bank said overall market conditions in Spain had improved but parts of the banking sector faced "very acute" challenges which "warrant decisive policy action," as outlined in the MOU.
It was however, more positive on the AMC -- the 'bad bank' which will hold the bad debts now clogging up the banking system, saying the mission had reached enough agreement with Madrid to allow it to be operational by December 1.
EU economic affairs commissioner Olli Rehn meanwhile welcomed the findings of the mission as "another step towards the thorough repair and reform of the banking system in Spain, which is in turn an essential building block for a return of investor and consumer confidence."