Bank of Spain and government prepare Bankia refinancing plan

The Bank of Spain and the Economy Ministry are finalizing a profound reorganization plan for troubled lender Bankia, which includes using money raised through the sale of public debt as passed in a February decree, to keep the banking group from going under because of the exorbitant amount of bad real estate loans it holds.

Market sources said on Sunday that Bankia and its parent, Banco Financiero y de Ahorros (BFA), which holds most of the troubled loans, could need anywhere between five to 10 billion euros to clean up their problematic assets from the property sector.

The bank's financial portfolio shows more than 31.8 billion euros in slow-paying loans and defaults.

The government has announced that it is reinforcing the Orderly Bank Restructuring Fund (FROB) by at least six billion more euros, including up to 15 billion through the emission of debt. This money will be listed as public debt, but won't be considered as deficit because the government will supposedly make money from the operation, according to the ministry.

BFA and Bankia would pay back any money it receives at around eight percent. The two lenders said Friday that it only had 11.9 billion euros in provisions to cover the 31.8 billion euros in problematic assets.