The European Union on Thursday approved a cash injection of 1.87 billion euros ($2.48 billion) into four former Spanish savings banks, the second phase of the overhaul of the country's banking sector. In return for the funds, the four lenders, which ran into trouble when a decade-long property boom burst five years ago, will reduce their balance sheets by up to 40 percent by 2017.

The cash injection means two of the banks - BMN and CEISS - will be nationalised through the subscription of ordinary shares by the Spanish state, while Liberbank and Caja 3 will receive temporary aid through contingent convertible bonds, also known as Cocos. The European Commission said the Spanish authorities committed to sell CEISS and have BMN and Liberbank listed before 2017.

"The restructuring plans of BMN, Caja3, Banco CEISS and Liberbank will make these banks viable again, thereby contributing to restoring a healthy financial sector in Spain, while minimising the burden for the taxpayer," EU Competition Commissioner Joaquin Almunia said in a statement.

Copyright Reuters, 2012