EU extends state aid for Spanish, Portuguese banks

(BRUSSELS) - European competition watchdogs announced the extension on Friday of special measures to help the Spanish and Portuguese banking sectors until the end of this year.

Hours before the release of "stress tests" on the ability of European banks to withstand a crisis, the European Commission said it had prolonged authorisation of schemes in both countries originally set up in the wake of the global financial crisis.

The so-called "stress tests" cover a big slice of EU banking, including 27 Spanish and four Portuguese banks.

Top EU officials have signalled recently that for any banks failing the tests, and having to raise new capital, offical support would be made available.

In Spain, the EU's competition authorities extended permission for an amended system allowing individual banks in trouble to be recapitalised with state involvement.

A Portuguese bank guarantee scheme obliging banks there to pay extra premiums in exchange for public guarantees in the event of collapse was also extended.

"This is to encourage banks to finance themselves without state support and to limit distortions of competition," the EU said in a statement.

Extensions to similar programmes have already been granted in severl EU countries.