Spain's banks to raise extra 35 billion euros in provisions: sources

MADRID Tue May 8, 2012 6:27pm EDT

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MADRID (Reuters) - Spain's government will demand its banks raise around a further 35 billion euros ($45.48 billion) more in provisions against sound loans in their property portfolios as it battles to assure problems in the banking sector are under control, financial sources close to negotiations said on Tuesday.

The amount would come on top of the 54 billion euros banks already need to raise to cover souring property loans made in Spain's collapsed property market.

The move is set to be announced after a regular Friday cabinet meeting and will form part of a wider banking reform plan, with a final figure which could range from 20-to-40 billion euros, according to sources.

The Economy Ministry offered no comment.

Banks would need to increase provisions on generic property loans estimated at around 140 billion euros to 30 percent from 7 percent, a source said.

Spain said on Monday it would present further reforms to its banking sector this week when it also intends to pump 7-to-10 billion euros into Bankia (BKIA.MC), the country's fourth biggest bank struggling with a huge toxic property portfolio.

The government will also present plans to hive off property assets from banks' balance sheets as the country desperately tries to avoid being sucked further into a euro zone debt crisis that has sent the country's borrowing costs soaring. ($1 = 0.7695 euros)

(Reporting by Carlos Ruano, Jesus Aguado and Nigel Davies; Editing by Michael Roddy)

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