The Bank of Spain has taken control of CajaSur, based in the southern city of Cordoba and controlled by the Roman Catholic Church, and will give it an injection of "at least" A$780 million to ensure its survival. It is the second troubled regional savings bank taken control of since since the start of the global financial crisis in late 2008, said an AFP report in the Sydney Morning Herald.
The International Monetary Fund has warned that Spain's economic recovery will be "weak and fragile," with urgent labour and bank reforms needed, the report said.
"The challenges are severe - a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness," the Washington-based IMF said.
Business newspaper Expansion said as much as A$4 billion may be needed to clean up the CajaSur's A$2.24 billion in doubtful debt and cover another A$543 million in bad loans and the depreciation of property assets.
Finance Minister Elena Salgado said the government did not have an estimate for how much the rescue of CajaSur will ultimately cost, saying only that it was up to the managers appointed by the Bank of Spain to make an evaluation.
But she said CajaSur, which has 486 branches and assets of $A28 billion, would be sold in a "competitive process" to ensure that the rescue operation "has the lowest possible cost to taxpayers."
"Our financial system is absolutely solvent. You can't say it is at risk because of an institution as small as CajaSur but obviously it was important to send a signal of strength, of control, of solvency," she told news radio Cadena Ser, the report said.
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