The Bank of Spain said on Saturday it had taken over the running of Spanish savings bank CajaSur after its planned merger with another of the country's small lenders failed.
CajaSur will now have access to the Fund for Orderly Bank Restructuring (FROB), the Bank of Spain said in a statement.
This action, which we have taken as a result of the viability problems presented by CajaSur and the impossibility of closing its merger with Unicaja, will guarantee that it can continue to operate and fulfill its obligations, the central bank said.
CajaSur accounts for nearly 0.6 percent of Spain's financial system's assets, which will not be affected in any way by the intervention, the Bank of Spain said.
The FROB, with a funding capacity of up to 99 billion euros ($123.8 billion), was set up by the government last June after the Bank of Spain was forced to take over the running of savings bank Caja Castilla de la Mancha.
A source close to the deal said the FROB would provide at least 500 million euros in financing to bolster Cajasur's balance sheet.
The lack of capital in Cajastur is estimated to be somewhat more than 500 million euros and that is at least the amount of capital the FROB will provide, apart from liquidity to be made available to the bank, the source said.
Spanish banks have overall weathered the global financial crisis thanks to strict regulatory oversight, but the bursting of a decade-long housing bubble has left them with a more than 300 billion euros debt hangover.
The country's largely unlisted savings banks -- accounting for about half of the financial system -- are most exposed to struggling property developers and have seen their capital eroded by soaring bad loans.
About one third of the regionally-controlled savings banks have merged, with another third in the process of merging.
The Bank of Spain has set a target to cut the number of savings banks to about 15 from 45 by mid-year.
(Writing by Judy MacInnes and Martin Roberts; Editing by Mike Peacock)