SPAIN has pushed forward with a major overhaul of the country's stricken banking sector after Brussels approved EU-funded restructuring plans, and with nationalised Bankia saying it will slash 6000 jobs and is set for a huge loss.
Meanwhile the Bank of Spain delivered more bad news on the overall economy, saying country appears stuck in a job-killing recession in the fourth quarter.
The European Commission cleared the restructuring of four Spanish banks - Bankia, NCG Banco, Catalunya Banc and Banco de Valencia.
The Commission said the restructuring of the four banks "will allow them to become viable in the long-term without continued state support" while the plans contain provisions to limit distortions to competition.
Banco de Valencia, whose independent future could not be secured, will be sold and integrated into CaixaBank, the Commission said in a statement.
Spain secured funding of up to 100 billion euros ($A124.90 billion) from its eurozone partners in June to help rescue its banks, brought to their knees by a mountain of bad debt built up in a property bubble which burst in 2008.
At that stage it looked as though Spain might need a full, sovereign debt bailout accord on top, but since then Madrid has weathered the storm and Prime Minister Mariano Rajoy has resisted pressure to ask for further help.
"The approval ... is a milestone in the implementation of the (accord) ... Our objective is to restore the viability of banks receiving aid so that they are able to function without public support in the future," European Competition Commissioner Joaquin Almunia said in the statement.
"Restoring a healthier financial sector capable of financing the real economy is indispensable for economic recovery in Spain" Almunia added.
Spanish Finance Minister Luis De Guindos said on Monday that the first payment to recapitalise the banking system would be about 37 billion euros, expected in December.
The Commission said that Bankia, the giant group at the heart of Spain's financial crisis and already bailed out by Madrid, would receive 36 billion euros in all when the eurozone program is also taken into account.
Bankia, whose shares had been suspended from trading on Wednesday by regulators, said after the Brussels announcement that it would cut 6000 jobs, about 28 per cent of its staff, by 2015 as it tried to stem losses.
The bank said it intended to return to profit in 2013, but warned that it expected to report a huge loss of 19 billion euros this year.
NGC would get 10 billion euros, Catalunya Banc 14 billion euros and Banco de Valencia 7.0 billion euros.
The Commission said that the balance sheets of Bankia, NCG Banco and Catalunya Banc would shrink by more than 60 per cent by 2017 compared with 2010, highlighting how over-extended the banks had become.
The banks henceforth will focus on their "historical core regions. They will exit from lending to real estate development and limit their presence in wholesale business," it said.
Notably, the fact that the banks and their shareholders are absorbing part of the losses means the overall state aid needed will be reduced by about 10 billion euros, it added.
Wednesday's decision clears the way for the banks to receive aid indirectly from the European Stability Mechanism (ESM), the new eurozone defence system which formally became operational last month.
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