The Bank of Spain said Wednesday it will offload Unnim, a loss-making savings bank taken over by the state last year, to BBVA, the country's second-biggest bank by assets.
Spain's bank deposit guarantee fund will assume Unnim's losses of 953 million euros ($1.255 billion) before the savings bank is sold to BBVA for one euro, the central bank said in a statement.
Under the agreement, the deposit rescue fund will assume 80 percent of Unnim's future losses over a 10-year period.
"This operation is good for BBVA and it is good for Unnim," BBVA president Francisco Gonzalez said in a statement, before adding it will "help strengthen the Spanish financial system".
The bidding process for Unnim closed on February 20. BBVA beat out Santander, Spain's largest bank, mid-sized lender Banco Popular and savings bank Ibercaja in the auction for Unnim.
Unnim, the result of a merger in 2010 of three small savings banks based in the northeastern region of Catalonia, was taken over in September by the central bank after it failed to meet new minimum-capital requirements.
It is one of five banks taken over by Spain after a property bubble burst four years ago, leaving the country's financial sector under a mountain of bad debt.
BBVA has assets in Spain worth 309.9 billion euros as of the end of 2011, while Unnim had assets of 28.5 billion euros when it was nationalized, which taken together total 338.4 billion euros.
That puts BBVA on a comparable level in terms of assets in Spain to Santander, which had assets in the country totaling 337.8 billion euros at the end of last year.
Unnim lost 107 million euros in the first nine months of last year.
In December the Bank of Spain offloaded nationalized savings bank Caja Mediterraneo (CAM) to Banco Sabadell, the only bank which made an offer to buy the loss-making lender.