THE Bank of Spain is to apply new rules allowing banks more leeway to cope with the recession by changing the way they can provision for different kinds of liabilities, a source at the central bank said.

Banks have been told they can reduce provisioning on certain kinds of mortgage debt, which was deemed to be too strictly regulated. In turn they will be obliged to increase the cushion they set aside for consumer loans. “The level of provisioning requirements in its entirety will be kept at the same level as at present,“ the source said, although the exact implementation of the new rules will have a different impact in the case of each bank.

Bad consumer debt is growing much more quickly than bad mortgage debt, although it makes up a much smaller proportion of banks' overall loan portfolios.

The measure is aimed at alleviating the impact of rising bad debts because of soaring unemployment and a housing crash, although it was the savings banks sector, in much worse financial shape, which asked the Bank of Spain to relax its requirements. Tough Bank of Spain regulation is one of the reasons listed Spanish banks have so far been relatively cushioned from the global financial crisis and Spain's own housing crash.