UPDATE 2-Spain's big banks to provide cash to help regions
* Santander, BBVA and Caixa to provide 4.8 bln euros
* Sabadell and Bankia to follow with 1.6 bln euros
* First tranche of 3 bln euros expected by end Sept. (Adds maturity of loan)
By Jesús Aguado
MADRID, Sept 12 (Reuters) - Spain's Santander, BBVA and La Caixa will contribute the lion's share of a loan to form part of an 18 billion euro rescue fund to help the country's cash-strapped regions, banking sources close to the negotiations said on Wednesday.
The three banks will each contribute around 1.6 billion euros ($2.06 billion) to the 8 billion euro government-guaranteed loan which makes up just under half of the so-called regional liquidity mechanism, which was unveiled in July to help cut the regions' borrowing costs.
"Santander, BBVA, Caixabank will have around the same share, around 1.6 billion euros," said one of the sources on condition of anonymity. The source had previously mentioned a participation of up to 2 billion euros.
The source said the details were agreed at a meeting between the banks and the Treasury on Tuesday.
Spain's highly-devolved regions, which along with city halls control around 50 percent of public spending, overshot their deficit targets by a wide margin in 2011. Economists say they are likely to fail again to deliver on their budget cutting pledges this year.
The regional governments lie at the heart of concerns about the country's economy and their ability to tackle budget deficits could play an import role in Spain avoiding a full-blown bailout.
The regions, alongside the struggling banking system, have been brought low by a real estate boom and bust which left banks burdened with soured property assets and regional governments starved of taxes from real estate transactions.
Catalonia, Valencia and Murcia said they would tap the new liquidity line but as many as 14 of Spain's 17 autonomous communities are expected to follow.
On Wednesday, Economy Secretary Fernando Jimenez Latorre said the conditions attached to accessing the fund would be formalised in coming days.
The national lottery -- Sociedad Estatal Loterias y Apuestas del Estado SA (SELAE) -- is also trying to raise 6 billion euros ($7.3 billion) through a syndicated loan with international banks to finance its contribution to the rescue fund. The remaining 4 billion euros will come directly from the Treasury.
The banks will extend the loan, with a three and a half year maturity, to the Treasury, which will guarantee it with state bonds. The interest rate of the loan will be set at around 4.5 percent, a price in line with what the state would pay to issue five-year debt.
Banco Sabadell and the nationalised lender Bankia will each contribute 800 million euros, although Bankia's participation will have first to be approved by the state bank rescue fund FROB.
A second source said that negotiations were still going on with other Spanish banks, including Banco Popular, to participate in the loan.
Popular would contribute around 500 million euros to the loan, a bank spokesman said. A first tranche of around 3 billion euros of the loan is expected to be disbursed by September 26, helping Catalonia and Valencia to cover their most immediate debt repayment needs, the first source said. ($1 = 0.7785 euros) ($1 = 0.7785 euros) (Reporting By Jesús Aguado. Additional reporting by Sonya Dowsett.; Editing by Julien Toyer and Jane Merriman)
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