The European Commission on Wednesday approved restructuring plans of four nationalized Spanish banks namely Bankia, NCG Banco, Catalunya Banc and Banco de Valencia and paved the way for more aid from Eurozone.

Banco de Valencia will cease to exist, while the other three banks will have to reduce the balance sheets by more than 60 percent by 2017 compared with 2010. CaixaBank yesterday bought Banco de Valencia for one euro.

The approval of the restructuring plans is a milestone in the implementation of the Memorandum of Understanding between euro area countries and Spain, EU Competition Commissioner Joaquin Almunia said.

Spain's central bank yesterday approved the restructuring plans for the banks in which, the Spain's rescue fund, the Fund for Orderly Bank Restructuring (FROB), has a majority stake.

Today's EU approval allows Spanish banks to receive aid from the European Stability Mechanism (ESM) in the context of the financial assistance programme to recapitalize the banking sector. The nation was earlier given consent to access up to EUR 100 billion from euro area's permanent bailout fund.

The lenders will altogether require around EUR 37 billion in aid. The actual disbursement of capital will foreseeably take place in the first half of December. The FROB will in turn inject the capital into the banks.

During the restructuring period, lenders cannot pay dividends to shareholders, and should not acquire other companies.

According to the proposed plan, banks will refocus their business model on retail and SME lending. They will exit from lending to real estate development and limit their presence in wholesale business.

Further, shareholders will have to absorb losses and contribute to the financing of the restructuring costs. This will reduce the state aid needed to restructure the banks by about EUR 10 billion.

RTTNews