The fallout from Spain's brewing financial crisis will likely have a limited effect on Chile because the two Spanish banks operating in Chile have been mostly unscathed by those financial troubles, Columbia University professor Xavier Sala-i-Martin said Friday.

Spain's banking system has been in the spotlight since the Spanish central bank recently took over a savings bank, then four other savings banks merged and the International Monetary Fund urged the country to speed up overhaul of its banking system.

Chile's largest bank, in terms of loans, is Banco Santander Chile (SAN, BSANTANDE.SN), a unit of Spanish giant Banco Santander SA (STD, SAN.MC). In addition, Banco Bilbao Vizcaya Argentaria SA (BBVA, BBVA.MC) operates the local Banco Bilbao Vizcaya Argentaria Chile SA (BBVACL.SN).

"Chile will be all right because the two Spanish banks that operate in Chile are doing well; the problem is with the smaller regional banks. I'd say Banco Santander and BBVA are among the healthiest banks in Europe," Sala-i-Martin told reporters on the sidelines of a business seminar.

While banks in Spain weren't hard hit by the subprime crisis, they did however fall prey to a domestic housing and real-estate bubble, which may prove disastrous for many of financial system's banks, the professor said.

"BBVA and Santander didn't fall into that [housing] bubble mindset and I'd consider them healthy banks," he added.

-By Anthony Esposito, Dow Jones Newswires; 56-2-715-8929; anthony.esposito@dowjones.com
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