UAE and Qatar to help out Spain

Spain's troubled savings banks receive a big capital injection from the UAE and Qatar.

The UAE and Qatar are set to provide a large cash injection to Spain's banking sector, as the country's prime minister finishes a tour of the Gulf.

Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, said the UAE would provide €150 million (Dh761.2m) to finance the recapitalisation of the Spanish cajas de ahorros, or savings banks, without specifying which would receive funds.

Speaking in Dubai, Jose Luis Rodriguez Zapatero, the Spanish prime minister, said the UAE would "continue their investment in the Spanish economy".

The move follows a similar announcement from the Qatari government that it would provide €300m for the cajas as part of a package of investments in the country. The UAE and Qatar have intervened in the past to help western banks, such as Barclays and Credit Suisse, secure additional sources of funding.

Mr Zapatero said both countries had a "great interest" in the recapitalisation of Spain's banking sector. The Spanish cajas have been recognised as one of the weak spots in the country's banking sector. While banking giants such as Banco Santander and Banco Bilbao Vizcaya Argentariaescaped the worst of the global financial crisis, the cajas - heavily exposed to the country's property bubble - quickly found themselves in need of fresh capital. The Bank of Spain, the country's central bank, said about €100 billion of the cajas' exposure to property was "classified as potentially problematic".

It recently announced new capital requirements for the cajas, giving them until March 10 to find new funds or face nationalisation.

Moody's Investors Service expects the cajas to require €50bn in new capital to meet the central bank requirements, in excess of the €20bn estimated by the Spanish government.

"Any injection of capital would be welcome, no matter where it comes from, whether from private investors or the Spanish government," said Alberto Postigo, an analyst at Moody's in Madrid.

"If all these funds are going to be concentrated in a specific savings bank where the capital gap is roughly the same rate it could be positive, but talking at a system-wide level, this [total of] €450m is a very small amount.

"I reckon that many steps will be necessary."