Spain's economy minister said all options for the sale of two nationalised banks are being looked at as rising loan defaults and more volatility on stock markets renew questions over how it can fix the weakened sector.
Bankers say that Spain must pump more funds into some of the banks it used EU and its own money to bail out last year if it hopes to sell them soon.
This means the government's options for recovering some of the investment is narrowing.
A recent government-commissioned report on the lenders by investment bank Nomura and consultancy McKinsey suggested quickly selling Catalunya Banc and NCG Banco before their assets deteriorate further, two banking sources said.
Economy Minister Luis de Guindos said today that the government was exploring all options for the sale of the two banks, although he said there was no rush.
"We have to do it at the right moment and the process must be competitive. We have five years to do it, there's no need to rush. I know there are some that want it to go quickly,'' the Minister said.
Barcelona-based Catalunya Banc and NCG Banco, from the northern region of Galicia, which together hold less than 10% of the Spanish market, took some of the biggest chunks of the €41 billion in aid Madrid took for troubled lenders last year.
Fernando Restoy, deputy head of Spain's central bank, opened the door on Friday to an asset protection scheme to speed up the sale of the banks, although he repeated the government's view that they do not need more capital.
Bankers say potential bidders are demanding guarantees against losses, or more capital, even though the banks are now mostly cleansed of the soured property assets that nearly felled them.
Two financial sources familiar with Catalunya Banc's accounts said interested bidders had identified additional losses of between €3-4 billion at the bank due to distressed loans to households and companies.
But pumping extra funds into the banks would hinder Spain's attempts to slash its deficit in a prolonged recession, as it faces public anger over deep public spending cuts. It would also bring the money spent on saving Catalunya Banc closer to its cost of liquidation.
Under the terms of the European bailout Spain cannot spend more on capitalising the bank than it would on winding it down.
Spain has spent over €75 billion to help 14 banks in the past four years. To cover extra needs, it has the option to draw down more of the €100 billion aid line from Europe.
