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Govt 'to order Spanish banks to raise another €35bn'

Spanish banks are set to be instructed to raise a further €35 billion ($45 billion) in capital in order to protect the country's ailing financial system.

Sources close to the ongoing negotiations between the struggling Iberian country's government and lenders have told Reuters the administration will demand these companies boost their provisions against loans in their property divisions.

If this proves to be the case, banks would have to raise a total of around €89 billion to cover both sound and faltering lending arrangements in Spain's ailing real estate industry.

The insiders told the news source financiers will also have to hike the provisions on their generic property loans to 30 per cent from the current level of seven per cent.

According to the sources, these plans will be unveiled following a cabinet meeting this Friday (11 May).

This comes after prime minister Mariano Rajoy said in a radio interview that he sees the use of public funds to assist embattled banks as a "last resort".

By Gary Cooper