Bank of Spain has come to the rescue of the Roman Catholic church controlled ailing savings bank CajaSur, which has become the latest victim of Spain's housing bubble.

The Fund for Orderly Bank Restructuring (FROB), which was set up by the Spanish government in June 2009, will immediately pump EUR500m into CajaSur, against the backdrop of the derailed merger talks between another savings bank Unicaja and CajaSur.

Eventhough, Sapnish banks have survuved the global financial turmoil due to strict regulatory measures, a decade-long housing bubble has left them in more than EUR300bn debt trap. Most of the Spain’s unlisted savings banks, which account for more than 50% of the financial system, have become victims of the struggling property developers and have observed their capital affected by soaring bad loans.

Cajasur too lended heavily to second homes on the Costa del Sol, a region in the south of Spain, where prices have registered steep decline in recent times.

Last year, the Bank of Spain urged weaker small banks to merge with their stronger counterparts. Since then almost one third of the regionally-controlled savings banks have merged. Bank of Spain intends to bring down the number of savings banks from 45 to about 15 by this mid-year.

Bank of Spain said: “This action, which we have taken as a result of the viability problems presented by CajaSur and the impossibility of closing its merger with Unicaja, will guarantee that it can continue to operate and fulfill its obligations.

“CajaSur represents barely 0.6% of the assets of the Spanish banking system, whose solidity will therefore not be affected in any way by this situation.”