Madrid, Feb 2 (EFE).- Spain's government has outlined a program aimed at shoring up the country's ailing financial sector, giving the weakest banks four months to present merger plans and a year for the entire sector to boost loss provisions by 50 billion euros ($65.5 billion).
The goal of the overhaul, which the Cabinet is due to approve Friday, is to achieve in short order a healthier banking sector that can increase lending activity, Economy Minister Luis de Guindos said Thursday.
He said the overhaul will initially be difficult because the country's banks are weighed down by some 175 billion euros ($230 billion) in troubled real-estate assets.
Most banks will have a year to sharply increase provisions for losses from property lending, while institutions involved in mergers will get two years to comply.
The new financial regulations will encourage banks to unload foreclosed property assets at fire sale prices and - as Prime Minister Mariano Rajoy's government hopes - force entities that cannot meet the stricter loss-provision requirements into mergers.
"The goal is to improve the confidence in and the credibility of the Spanish banking sector through the cleaning up of real-estate assets, consolidation of non-viable entities and ... better corporate governance," De Guindos said.
Banks that opt to merge must present their plans before a May 31 deadline and will be eligible for financial assistance.
To receive government approval, the merged entity must be 20 percent larger and pledge to increase lending. It also must adhere to corporate governance rules related to, among other things, executive pay.
Banks that opt to merge also will be eligible to receive financing from the government's Fund for Orderly Bank Restructuring, or FROB, whose capital will be boosted from 9 billion to 15 billion euros.
The overhaul of the financial sector has been one of the main priorities of the Rajoy government since it came to power in December, along with reining in a high budget deficit and lowering sky-high unemployment.
The effects of the global recession were aggravated in Spain by the collapse of a long construction and property boom that had made the country's economy the envy of most of Madrid's European partners.
