Spanish economy weighs on banks

Spain’s economy is weighing on Spanish banks and is the “main risk factor” as lending shrinks and real estate prices fall, the EU says.

“Lending to the real economy is still contracting at a rapid pace against the backdrop of weak solvent demand for new lending and a large increase in the banks’ holdings of government securities,” the European Commission said yesterday in its fourth review of Spain’s compliance with terms of a banking industry bailout.

The government needs to keep pressing for changes, and the banks should continue to improve their solvency to underpin lending, the report said.