Basque bank Kutxabank will have to set aside another 855 million euro

Basque bank Kutxabank will have to set aside another 855 million euro to cover potential losses on real estate, an effort to restore confidence in a sector that is at the heart of the country's financial crisis.

Once deducted taxes, the impact of these funds will be 616 million euro, a similar amount to the 650 million euro the Basque bank had foreseen against potential losses from dubious property loans.

The new money banks will have to set aside by year's end will cover loans that are not yet considered problematic but could sour if the recession proves deeper than expected.

An spokesman for Kutxabank said the Basque bank will be able to meet his obligations with ease "taking into account its strong starting point January 1st, 2012, the available funds and its capacity to generate results".

After Spain's property market collapsed in 2008, banks have been saddled with bad loans and foreclosed property, estimated at around 184 billion euro as of the end of 2011. That has weighed on the economy.

Last Friday, Economy Minister Luis de Guindos unveiled measures for banks to place their non-performing real estate assets into separate entities, which would then be charged with selling them at market prices.

The minister said banks that cannot meet the new requirements can request money from a government bailout fund. Those loans will be granted at an interest rate of nearly 10 percent.

The new provisioning requirements are tough. Under the last bank reform plan, banks had to provision healthy, performing real estate loans at a rate of 7 percent of the asset amounts. That now goes up to 30 percent.