Spain on investor offensive after communications failures

Doubts remain over Spain's ability to clean up its fiscal position and struggling bank sector this year despite the central bank's publicity offensive in Europe and Asia to try to dispel what it sees as myths about the economy. The Bank of Spain's head of banking supervision, Jose Maria Roldan, has been visiting Singapore, Hong Kong and Tokyo this week after talking to investors in London last week about recent reforms the government says will improve competitiveness and clean up the ailing banking system. Asian investors make up around 20 percent of all non-resident holdings in Spanish public debt, far below European holdings, but dwarfing American investment. In his presentation Roldan said the European Central Bank's recent massive programme of cheap three-year loans had covered banks' maturing debt this year and for most of 2013. He admitted however that the ratio of bad loans held by banks was expected to rise in coming months, after hitting their highest level since 1994 in February. Analysts welcomed the presentation but said more work would have to be done to persuade investors that all was sound on the fiscal front and in Spain's banking system, weakened by the sinking property market. "There are some things where we are clearly more negative than their projections. We see very little prospect Spain will be able to meet its fiscal target mostly because of the economic outlook ... and they also give a very rosy view of the banking sector", said Ebrahim Rahbari, analyst at Citi of Roldan's presentation in London. He said the central bank's projection of how far banks were protected against sliding house prices failed to take into account significant potential falls in house prices, and any non-real estate exposure at a time when the economy was in recession. However, Rahbari welcomed the central bank's presentation and said that Spain had been good at providing data to investors during the crisis, indeed more so than other European governments. Roldan's tour comes as Spain's borrowing costs have jumped after a string of communication errors by the new government which some investors claim rekindled fears over the economy.

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