Banco Santander SA, Spain's biggest bank, has quietly improved a deal to compensate selected private banking clients who lost money to accused swindler Bernard Madoff, the Wall Street Journal reported on its website on Monday.

Santander in January offered to return a portion of the money lost by its clients in the purported $50 billion fraud carried out by the New York-based investment manager.

The bank's representatives have been offering incentives to their best clients to get them to accept the proposed compensation, after lawyers representing some of the investors had dismissed the original offer as inadequate, the newspaper said, citing unspecified people familiar with the matter.

In January, Santander said it would give Madoff-hit clients the value of their original investments in the form of preferred stock paying an annual interest rate of 2 percent.

Some wealthy clients are being given the possibility of using the preferred shares as collateral for a loan charging 3 percent annual interest, the newspaper said. It said the loan, which can amount to 85 percent of clients' original investment with Madoff, can be taken in cash or reinvested in bonds that pay 6 percent interest.

Also, clients would no longer have to maintain their bank accounts in Santander to be eligible for the preferred stock swap, the newspaper said.

The newspaper quoted a Santander spokesman as saying that the bank's January compensation offer was non-negotiatable. A bank representative was not immediately available for further comment.

(Reporting by Martha Graybow; Editing by Christian Wiessner)