Spain on track with bank sector reform -ECB, Commission

BRUSSELS, Oct 26 (Reuters) - Spain is on track to correct the problems in its financial sector, but needs more decisive action to deal with challenges facing some banks, the European Central Bank and the European Commission said in a joint statement on Friday.

A team of ECB and Commission inspectors visited Spain between Oct. 15 and 26 to check on progress in reforming the banking sector, which had been agreed in a memorandum of understanding between the Commission and Spain in July.

Under the deal, Madrid can get a loan of up to 100 billion euros to recapitalise its banks, which were hit hard by the collapse of the mortgage market.

``While the overall financial market conditions in Spain have improved since the start of the programme and funding strains have been reduced, the challenges to parts of the banking sector remain very acute and warrant decisive policy action as outlined by the programme's memorandum of understanding (MoU),'' the statement said.

``Overall, the findings of this mission point to a successful programme whose implementation is on track,'' the statement said.

The ECB and the Commission said they reached an agreement with Spain on the design and functioning of the future Asset Management Company (AMC) - Spain's ``bad bank'' that will take over lenders' risky assets - including on its overall size and governance.

``This will, as a cornerstone of the programme, allow the AMC to be operational as of Dec. 1,'' the statement said.

(Reporting By Jan Strupczewski; editing by Rex Merrifield)