The lending institution said Friday that Spain's financial sector is well managed but vulnerable. It recommended that banks raise capital by an additional unspecified amount beyond the euro40 billion to properly restructure troubled banks, noting that the country should be prepared for further bank losses.
"Going forward, it will be critical to communicate clearly the strategy for providing a credible backstop for capital shortfalls_a backstop that experience shows it is better to overestimate than underestimate," said Ceyla Pazarbasioglu, an IMF deputy director who head of the team that conducted the report
The IMF report said that most large banks in Spain are resilient but are being undermined by the vulnerabilities of weaker banks. It praised Spain for steps it had already taken to shore up its financial sector.
"Executive Directors commended the Spanish authorities for the significant progress made in consolidating the banking sector and addressing balance sheet weaknesses amidst challenging economic conditions," the IMF said.
The Spanish government appears resigned to the need for a bailout from Europe.
Spanish Deputy Prime Minister Soraya Saenz de Santamaria said Friday that the country could decide this month whether to request a bailout. She said the government will not act until receiving evaluations from the IMF and two independent auditors Spain has hired. The auditors' surveys are due by June 21.
Saenz de Santamaria declined to say how much the sector, hit by the collapse of the country's real estate bubble, might need. Commenting on reports that 17 eurozone finance ministers will hold a conference call the Saturday on Spain she said that "no meeting is planned" but would not confirm or deny whether some kind of communication would take place.
Spain has been criticized for being too slow to set out a roadmap to resolve its problem. European business leaders and analysts have stressed that Spain must find a solution quickly so that it is not caught up in any market turmoil sparked by the Greek elections on June 17.