The Bank of Spain is relaxing exchangecontrols to help put Spanish banks on an equal footing with
European Community competitors by the 1993 deadline for the
ending of restrictions, a central bank spokesman said.
    "The measures to take effect by June were designed to lift
restrictions on foreign currency operations, in line with
deregulation in the banking industry," he said in a telephone
interview.
    The spokesman said the relaxation of exchange controls
highlighted a broader package of reforms announced last Friday.
    The central bank said in a statement the measures included
increased provisions for high-risk borrowers and a provision
for future pension fund obligations.
    It said the measures were the latest steps to deregulate
Spain's financial sector, a move triggered by entry into the
Community last year.
    Spain has five years to complete bank deregulation, a
process that began in 1978 when the government allowed foreign
banks to open branches.
    Since then 39 foreign banks have come into the market and
they now control about 15 pct of the system's lending assets.
    Residents in Spain can now borrow freely in foreign
currency up to the equivalent of 1.5 billion pesetas against a
previous ceiling of 750 mln pesetas.
    The 750 mln peseta limit was set last March. Between that
date and the end of last year some 430 mln dlrs flowed into the
country on new foreign currency loans.
    The central bank spokesman said operations over 1.5 billion
pesetas were technically subject to authorisation, but would be
given clearance if the government failed to act in 15 days.
    Spanish banks will also be allowed to expand their foreign
currency funding, formerly obtainable through deposits, by
issuing certificates of deposit, bonds and commercial paper.
    They can also employ these funds to invest in foreign
issues, while before they had to be converted into deposits.
    Foreign exchange operations can be in mixed currencies,
instead of having to borrow and lend in the same currency.
    The central bank has also lifted the restriction on the
amount of foreign exchange loans, which previously were limited
to three times a bank's capital equity.
    The latest deregulation measures were welcomed by most
bankers, in contrast to rulings issued earlier this month which
imposed a 19 pct reserve requirement on new convertible peseta
funds held by banks and freed short term deposit rates.
    The reserve requirement, which was already in place on
normal peseta deposits, was intended to curb short-term foreign
speculative capital which is entering the country and
threatening the government's money supply growth target.
    A foreign banker said high reserve requirements, which now
account for about 30 pct of deposits, placed Spanish banks at a
disadvantage with European competitors.
    The government reduced fixed asset investment requirements
to 11 pct from 23 pct to help offset the negative impact of
interest rate deregulation. "The real problem is the freeing of
interest rates," the banker said. "This is going to take a big
bite out of profits."
    The ruling lifted a six pct ceiling on interest rates paid
on deposits of up to 180 days.
    The chairman of one of Spain's leading banks said the
measure was expected to bring a 20 pct drop in profits this
year.
 REUTER
