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Spain banks face profitability challenge: EC, IMF

A man asks for alms outside a branch of Spanish BBVA bank in Madrid September 30, 2013. REUTERS/Susana Vera
A man asks for alms outside a branch of Spanish BBVA bank in Madrid September 30, 2013. REUTERS/Susana Vera

MADRID (Reuters) - Spanish banks will struggle with profitability over the coming years as lending shrinks further and housing prices keep falling, the European Commission and the International Monetary Fund said on Monday.

A 41.3-billion-euro ($57 billion) European aid program for Spain's weakest lenders, which were crippled in the aftermath of a 2008 property crash, is set to expire on January 23.

The European Commission said banks' solvency was now adequate after Spain used the funds to plug capital holes last year.

In its fifth and last review of Spain's financial sector, the commission warned however that the economy was still weighing on the sector, even though the country is slowly pulling out of recession.

"Continued in-depth diagnostics of the shock resilience and solvency of the Spanish banking sector remain vital," the European Commission said in a statement.

The IMF, which is monitoring the assistance program, said Spanish banks needed to keep adequately provisioning against losses in their books, and prepare for next year's Europe-wide review of banks' asset quality and stress tests.

($1 = 0.7283 euros)

(Reporting by Sarah White, Editing by Fiona Ortiz)

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