Spain’s fourth largest bank Bankia, which lost billions of euros through its exposure to the collapsed property market on Friday asked the government for a financial support of 19 billion euros to avert bankruptcy.
Bankia had already received from the Spanish government a financial assistance of 4.5 billion euros when it was partially nationalised two weeks ago and the total costs of rescuing the bank will now go up to 23.5 billion euros.
More bad news for the Spanish government came from the regional government in Catalonia, which asked for help to make payments.
While the financial crisis in Greece was triggered by massive debts and huge budgetary deficit, the crisis in Spain stems from the banking sector, which suffered massive losses after the property bubble burst in 2008.
Bankia, which reportedly has provided about 32 billion euros credit to the unsuccessful property market is at the centre of the Spanish financial crisis.
The government of Prime Minister Rajoy is determined to prevent a collapse of the bank at any cost, media reports said quoting government officials.
The Spanish government holds a 45% stake in the bank, which was created two years ago by merging Caja Madrid with several regional savings banks.
In view of the deteriorating situation of the Spanish banks, rating agency Standard & Poor’s on Friday evening downgraded the creditworthiness of Bankia and four other banks to BB+ from BBB.
Last week, Moody’s had downgraded 16 Spanish banks.
Bankia announced on Friday that it suffered a loss of around 3 billion euros in 2011, correcting an earlier claim that it made a profit of 300 million euros.
Trading in Bankia shares was temporarily suspended in the Madrid stock exchange.
Spain’s economy minister Luis De Guindos told Parliament in Madrid that his government will make available the funds necessary for Bankia’s survival.
The Institute of International finance (IIF) estimates that the Spanish banks are sitting on credits worth about 260 billion euros and they will need an additional 76 billion euros to protect against credit default.
Spain ’s economic outlook is "worse than that of Ireland", which was bailed out by the EU and the IMF last year, the London-based institute said.
The IIF said earlier this week that the Spanish banks are in a position to raise 184 billion euros and the state will have to step in to fill the financing gap of 76 billion euros.