* ECB, EU Commission says Spain's bank reform on track
* IMF urges strict reform of savings banks
* No call for immediate boosting of solvency rates
* Weak economy, lower lending seen as risks
* Madrid yet to decide if will tap more euro zone aid for
By Sarah White and Martin Santa
BRUSSELS/MADRID, Sept 30 Spain's banks remain
comfortably solvent, the bodies monitoring the country's
international aid programme said on Monday, offering guarded
optimism about its financial and economic reforms.
As Madrid decides whether to tap more aid for its battered
lenders, the European Commission and the European Central Bank
said the reforms were broadly on track though the country's
slack economy and a fall-off in loan activity posed a risk.
The verdict, while broadly positive, highlights the delicate
task facing Europe's leaders as they attempt to put five years
of financial crisis behind them by restarting economic growth
and reforming of the financial system.
Unlike a handful of its euro zone peers, Spain has not
sought a sovereign bailout from the EU, ECB and International
But banks in the bloc's fourth largest economy were granted
100 billion euros ($135 billion) of euro zone assistance last
year, of which they have drawn down 41 billion euros.
They were among the most exposed to the effects of the
crisis, saddled with billions of euros in soured loans and
assets from a property bubble that burst in 2008.
The government has yet to formally decide whether to take
more of the money or extend the programme beyond 2013, though
officials maintain the lenders need no more emergency funds.
But a Europe-wide health check of banks in 2014 could expose
further weaknesses, and Spanish banks have also been under
strain this year after they were told to reclassify many
refinanced debts as bad debts.
The Commission and the ECB, which concluded their fourth
review of the country's reforms earlier this month, said on
Monday that while Spanish banks' access to market funding had
improved, risks remained.
They said there were signs the downturn had hit its lowest
point but the weak economy continued to weigh on the banks.
"Lending to the economy is still contracting substantially,
in particular against the backdrop of weak demand," the report
said, adding that the need to reduce public and private debt
would further weigh on bank profits.
They did not instruct the banks to boost their solvency
rates, and neither did the IMF in a separate message.
In its role as an independent monitor providing technical
assistance to the Spanish bank aid programme, the Fund however
said that as the banks continued to strengthen their solvency,
they should do so without further cutting credit.
Rigorous supervision should continue, in particular to
ensure loan losses were recognised, the IMF said.
It said a planned savings banks reform, which is making its
way through parliament, should not be watered down.
Years of political meddling in the savings banks resulted in
bad investments that nearly felled many of them when the economy
Some political parties in Spain have suggested amendments to
the new law, which could reduce the burden on charitable
foundations linked to banks to create reserve funds for future