Spain's Liberbank plans 500 mln euro capital increase to shore up finances

MADRID, Sept 6 (Reuters) - Spain’s Liberbank, one of the country’s weakest lenders, proposed a 500 million euro ($597 million) capital increase on Wednesday in order to set aside more money against non-performing assets.

Liberbank has been burdened by high levels of bad loans for several years despite efforts to sell poorly performing real estate assets accumulated during Spain’s financial crisis.

After the rescue of troubled Banco Popular in early June, Spanish regulators imposed a short-selling ban on Liberbank to stem what European authorities described as a potential “domino effect” that threatened to damage Spain’s entire banking system.

Popular’s rescue resulted in heavy losses for shareholders and in turn prompted a steep fall in the share price of Liberbank, wiping out almost half of the bank’s market value. As part of the rescue, Banco Santander agreed to buy Popular for a single euro.

The ban on short-selling of Liberbank’s stock will last until Sept. 12. Since the ban, Liberbank shares have gained more than 40 percent.

Liberbank will hold a shareholder meeting on Oct. 9 to approve the capital increase, which the bank said would increase its coverage ratio to 50 percent, in line with its larger Spanish peers, from 40 percent currently.

Like most European lenders, Liberbank, which controls around 2 percent of all Spanish deposits, is also suffering from ultra-low interest rates which are squeezing its lending margins.

The bank said on Wednesday that it aimed to sell more than 800 million euros of non-performing assets before the end of the year and was planning to reduce them by 4 billion euros to 1.7 billion euros by 2020.

It said it expected to resume a cash dividend policy in 2018 with a 20 percent payout ratio, increasing it to 40 percent in 2020. It plans to increase its capital under the strictest “fully loaded” criteria to 12 percent in the short term from 11.3 percent as of end-June.

$1 = 0.8376 euros Reporting By Jesús Aguado; Editing by Angus Berwick and Susan Fenton