Spain's Santander says govt bank plan appropriate

SANTANDER, Spain, June 16 (Reuters) - Spain's proposed bank rescue fund, which could be worth up to 99 billion euros ($137.6 billion), is the appropriate response for the country's ailing financial institutions, Banco Santander SA's (SAN.MC) deputy chairman said on Tuesday.

"It seems to me this is a step in the right direction, but we need to see it in practice ... I don't see it affecting competition in Spain," Matias Rodriguez Inciarte said.

Spain's Economy Minister Elena Salgado said on Monday the fund, which will start with an initial 9 billion euros, would only be used as a last resort and would give the Bank of Spain the right to make structural changes in the affected bank.

Spain's major commercial banks have so far avoided serious capital problems due to the economic turn down and rising bad loans, but regionally-focused savings banks have been hard hit by the collapse of the once-booming property sector.

The largely unlisted savings banks have strong ties to regional authorities which complicates mergers between troubled institutions from different regions. If any bank receives state aid, the Bank of Spain would be able to over-ride any merger veto by local authorities, Salgado said.

"The fact that a system would be managed by the Bank of Spain seems like the right mechanism and I'm confident the Bank knows how to act in these cases," Rodriguez said.

Rodriguez reiterated forecast earnings for Santander's U.S. Sovereign Bancorp, which it bought out earlier this year, of a $750 million profit after the third year following the purchase. (Reporting by Paul Day and Jesus Aguado; Editing by David Holmes)