SPAIN TO RELAX EXCHANGE CONTROLS The Bank of Spain is relaxing exchange controls to help put Spanish banks on an equal footing with European Community competitors by the 1993 deadline for the ending of restrictions, a central bank spokesman said. "The measures to take effect by June were designed to lift restrictions on foreign currency operations, in line with deregulation in the banking industry," he said in a telephone interview. The spokesman said the relaxation of exchange controls highlighted a broader package of reforms announced last Friday. The central bank said in a statement the measures included increased provisions for high-risk borrowers and a provision for future pension fund obligations. It said the measures were the latest steps to deregulate Spain's financial sector, a move triggered by entry into the Community last year. Spain has five years to complete bank deregulation, a process that began in 1978 when the government allowed foreign banks to open branches. Since then 39 foreign banks have come into the market and they now control about 15 pct of the system's lending assets. Residents in Spain can now borrow freely in foreign currency up to the equivalent of 1.5 billion pesetas against a previous ceiling of 750 mln pesetas. The 750 mln peseta limit was set last March. Between that date and the end of last year some 430 mln dlrs flowed into the country on new foreign currency loans. The central bank spokesman said operations over 1.5 billion pesetas were technically subject to authorisation, but would be given clearance if the government failed to act in 15 days. Spanish banks will also be allowed to expand their foreign currency funding, formerly obtainable through deposits, by issuing certificates of deposit, bonds and commercial paper. They can also employ these funds to invest in foreign issues, while before they had to be converted into deposits. Foreign exchange operations can be in mixed currencies, instead of having to borrow and lend in the same currency. The central bank has also lifted the restriction on the amount of foreign exchange loans, which previously were limited to three times a bank's capital equity. The latest deregulation measures were welcomed by most bankers, in contrast to rulings issued earlier this month which imposed a 19 pct reserve requirement on new convertible peseta funds held by banks and freed short term deposit rates. The reserve requirement, which was already in place on normal peseta deposits, was intended to curb short-term foreign speculative capital which is entering the country and threatening the government's money supply growth target. A foreign banker said high reserve requirements, which now account for about 30 pct of deposits, placed Spanish banks at a disadvantage with European competitors. The government reduced fixed asset investment requirements to 11 pct from 23 pct to help offset the negative impact of interest rate deregulation. "The real problem is the freeing of interest rates," the banker said. "This is going to take a big bite out of profits." The ruling lifted a six pct ceiling on interest rates paid on deposits of up to 180 days. The chairman of one of Spain's leading banks said the measure was expected to bring a 20 pct drop in profits this year.