MADRID (Reuters) - Spanish lender Banco Popular POP.MC should not expect to receive an injection of public funds, the country's economy minister said on Thursday, increasing pressure on the bank to find a merger partner quickly.
Struggling under the weight of 37 billion euros ($41 billion) of non-performing real estate assets left over from Spain's financial crisis, Popular's new management has said it would consider a merger as a way out.
Several larger Spanish banks, including Santander (SAN.MC), BBVA (BBVA.MC) and state-owned Bankia (BKIA.MC), declared a preliminary interest in a merger this week after Popular said it was considering its options, which include a merger or another capital increase after it raised 2.5 billion euros last year.
But sources familiar with the talks said the lenders have yet to find out Popular's exact needs and have not made any decision on whether they would bid for the rival bank.
The sources also said Popular would first try to merge, then if did not work it would seek to raise money and only if both of those options fail could a bailout be on the table.
Asked whether Popular, Spain's sixth largest bank, needed a state rescue, Economy Minister Luis de Guindos said: "The government does not foresee injecting public funds."
Popular's capital levels were still above regulatory requirements, he said at an event in Madrid, citing feedback from the Bank of Spain.
Banco Popular ended March with a phase-in capital level 0.53 of a percentage point above its requirement of 11.38 percent as set by the European Central Bank.
However, its capital under the strictest "fully-loaded" criteria is the lowest among listed Spanish banks at 7.33 percent, down from 8.17 percent at the end of December.
Most have made good progress since Spain sought a 41 billion euro European bailout for its lenders in 2012, clearing their books of the huge volumes of toxic real estate assets amassed during the crisis years, but Popular remains saddled with the highest amount in the sector.
Popular's non-performing loan ratio is about three times above the average of its Spanish rivals.
Popular reported a 3.6 billion euro loss for 2016 and has undergone three leadership shake-ups since July. Its shares have fallen 62 percent over the past year and are the worst performers on the European STOXX banking index .SX7P.
Writing by Angus Berwick; editing by Julien Toyer and David Clarke