The restructuring of the Spanish financial system may have hit a roadblock, with economy minister Luis de Guindos declaring that the country's three fully nationalised banks will not be merged. Reuters reported that despite a failed auction attempt, the option of a merger will not be explored. However, with Spain under pressure to privatise the institutions before the EU-imposed deadline of 2017, the government needs to come up with a new plan and fast.

Last week, sources had told the news provider that officials had been investigating a full or partial merger of Bankia and Catalunya Banc, after sales collapsed. The third lender, NCG Banco is currently fully owned by the restructuring fund FROB.  "We have three banks 100 percent-owned by the FROB, and logically there will be a coordination of plans between the three," Mr de Guindos said."They will absolutely not be merged."

Placing Catalunya Banc and Bankia under one holding company is one way to avoid a complete merger, which would require input from Brussels. However, there may still be a reluctance on the part of some to wave goodbye to hopes of autonomy for the three banks.

So what does this mean for Spanish property? Ultimately, with the country's banks still under government control, lending is likely to remain constrained and uncompetitive. What's more, there could be implications for the ability of banks to handle toxic assets.

However, any concern is arguably premature, as the International Monetary Fund (IMF) has declared that Spain's financial reforms are on track. Officials particularly praised the country's conduct in absorbing troubled financial institutions into Sareb and managing the transfer of assets.

Nonetheless, the IMF has highlighted that "vigilant oversight" is needed to ensure any risks to the economy and the financial sector are controlled. Spain remains in a fragile position, with recession in other parts of Europe filtering through to the country. The economy is also expected to shrink in 2013 for the second year in a row, while unemployment looks set to rise.



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