Spain's new 'bad bank', called Sareb, will take over toxic loans and foreclosed property assets at steep discounts as part of a plan to put the Spanish banking system back on track.

Spain's new 'bad bank', called Sareb, will take over toxic loans and foreclosed property assets at steep discounts as part of a plan to put the Spanish banking system back on track.

Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria (Sareb) will buy troubled loans at an average discount of over 55%, while foreclosed land will be transferred for a discount of as much as 80%, the Bank of Spain said.

Nationalised banks such as Bankia are expected to transfer the bulk of the assets - up to EUR 45 bn of assets - to Sareb.

'The creation of Sareb will substantially reduce any uncertainty over the viability of entities that need state aid, allowing them to concentrate on their main business,' the central bank said last week.

Spain's local banks and cajas have inherited billions of problem assets following the collapse of the local housing market. The creation of a bad bank was one of the conditions imposed by Spain's eurozone partners in order to provide a lifeline of up to EUR 100 bn to refinance the country's belaguered banking system.