UPDATE 3-Spain must heed mkts, but fundamentals sound -c.banker

* Bank of Spain’s Ordonez upbeat on growth after budget cuts

* ECB’s Paramo says latest measures are “appropriate”

* Moody’s sees negative outlook for Spanish bank system

* Bank of Spain says savings banks wont tap FROB in 2011

(Adds Ordonez comments on savings banks funding)

By Sarah Morris and Nigel Davies

MADRID, Dec 13 (BestGrowthStock) – Market warnings about Spain’s
finances must be heeded but the country’s economic fundamentals
have not changed and it can emerge from the crisis to outgrow
European peers, the head of the Bank of Spain said on Monday.

Fears that Spain may be forced into a Greek or Irish style
bailout continue to push yields on Spanish sovereign debt higher
and the relative cost of borrowing compared to German Bunds is
close to euro-lifetime highs. (ES10YT=TWEB: )(DE10YT=TWEB: )

There was also bad news from the property market, whose
collapse is the heart of Spain’s economic troubles. House sales
fell for a second month in October, by 17.7 percent on the year
after a 4-percent fall in September. [ID:nLDE6BC0FX]

“What we’ve learned is that to criticise the ignorance (of
the markets) has little practical point. The best reaction is to
offer them the best and most information possible,” Bank of
Spain Governor Miguel Angel Fernandez Ordonez said in a speech.

On a day when Moody’s published a downbeat report on the
prospects for Spain’s banks, Ordonez said there were enormous
differences between Spanish lenders and their Irish

He pointed to the results of European bank stress tests
earlier this year, which gave all Spain’s major players a clean
bill of health, adding there was no comparison between the
Spanish and Irish tests.

“However, the markets seem to have forgotten about this and
are following the logic if Ireland had property and banking
problems, something similar could happen in Spain,” he said.

The central bank has told the country’s banks, faced with
mounting bad loans on the back of the burst housing bubble, to
give detailed quarterly reports which include exposure to
property developers and bad loan ratios.

Spain’s unlisted savings banks, most exposed to property
sector excesses, have seen their capital substantially eroded
and have tapped the government’s up to 99 billion euros FROB
fund to facilitate a wide ranging merger process.

The central bank does not expect any more funds to be issued
from the FROB in 2011, however, coinciding with a change in the
savings banks’ legislation allowing private investors to
participate in their capital, Ordonez said.

“Some banks are going to raise capital independently, others
through the FROB and if they need it, it is available,” Ordonez

Moody’s said Spain’s banking system would need to
recapitalise by an extra 17 billion euros on the basis of a
minimum 8 percent Tier 1 capital ratio after conservative
one-year earning estimates were taken into account.


Spain announced a new round of measures this month to calm
bond markets, including bringing forward pension reform, raising
tobacco taxes and axing wind subsidies. It had already passed
savings plans worth around 50 billion euros this year.

European Central Bank Executive Board Member Jose Manuel
Gonzalez-Paramo said Spain must “scrupulously” implement policy
promises aimed at restoring its reputation in international
credit markets.

“These measures are appropriate. The diagnosis is correct
and so are the measures,” Gonzalez-Paramo said in an interview
with Spanish radio station COPE on Monday.

“The way to recover credibility is to act on the measures
that have been announced. They must act on all these measures
scrupulously without missing a single deadline and this
confidence will return.”

With one in five workers jobless, the highest unemployment
rate in any OECD developed country, Spain’s economy crawled out
of a recession at the beginning of the year, but many economists
still expect it to contract for the year as a whole.

Ordonez said Spain would once again outgrow the euro zone’s
larger economies once it had reduced its public deficit to an
expected 6 percent of gross domestic product next year.
(Additional reporting by Paul Day; editing by Patrick Graham)

UPDATE 3-Spain must heed mkts, but fundamentals sound -c.banker