UPDATE 1-Spanish tweaks tax rules to give banks a 30 bln euro boost

Fri Nov 29, 2013 9:34am EST

* State will transform deferred tax assets into tax credits

* Measure will bolster capital ahead of EU stress tests

* Government expects no negative impact on public accounts

By Julien Toyer and Andrés González

MADRID, Nov 29 (Reuters) - Spain gave its banks a 30 billion euro ($40.8 billion) capital boost on Friday by allowing them to transform part of their so-called deferred tax assets into state-backed tax credits and count them as core capital under new global banking rules.

The new decree will help many banks to pass a Europe-wide stress test next year and save them from having to tap financial markets or public bodies for additional funds.

Under the international Basel III rules, deferred tax assets (DTAs) will not be counted as part of a bank's core capital from January 2014, potentially weakening the position of Spanish bank, many of which had to be rescued by European funds after the financial crisis.

Under the decree passed by the Spanish government on Friday, lenders will be able to count about two thirds of their estimated 50 billion euros of DTAs as core capital, Economy Minister Luis de Guindos said.

Nationalised lender Bankia has 7.1 billion euros of DTAs, followed by Caixabank (6.7 billion euros), Sabadell (4.7 billion euros), BBVA (4.5 billion euros), Santander (4 billion euros) and Popular (3.2 billion euros).

Smaller nationalised lender NCG Banco, currently up for sale, is also set to benefit directly because it has up to 4.5 billion euros of DTAs, making it more attractive to potential bidders.

Spanish banks have long argued that by not allowing them to swap the assets for tax credits would put them at a disadvantage against European peers in next year's stress test.

Italian banks were given such an accounting relief from their central bank in 2011.

De Guindos also said that the negative impact of the measure on public accounts would be "almost non-existent" because some of the banks benefiting from it are owned by the government and high costs will occur only if a bank becomes insolvent.

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