IMF to Spanish Banks: Cut Dividends, Lend More

spain

Capital rules, large banks, and lending continue to define the conversation for growth in struggling European countries, where high unemployment, weak governance, and the end of quantitative easing disincentivize firms from doling out cash.

As Spain deals with over 20 percent unemployment, banks there have not only stiffened lending requirements and hiked rates, but the need for higher capital requirements has further distanced their capital from the businesses and entrepreneurs who need it. The International Monetary Fund has been quite vocal about policy and economic direction across the globe lately, and Spain was no exception, where the IMF told banks to cut dividends instead of lending to deal with higher capital requirements.

In its third progress report on the sector, the IMF says, “Financial sector dynamics still contribute to recessionary pressures, with credit contraction accelerating, lending standards tightening, and lending rates to firms rising.” Indeed, this increase of rates and lowering of lending has been plaguing Europe for a while now, and in May, lending to non-financial institutions in Spain contracted by 9.1 percent.