Spain will consider seeking a bailout if the conditions imposedare acceptable, Deputy Prime Minister Soraya Saenz de Santamariasaid as loan defaults at Spanish banks climbed and lendingdropped.

Bad loans in the country's banking system rose to a record 9.86percent in July and lending fell 4.53 percent from the year-earlierperiod, the Madrid-based Bank of Spain said today. Spain sold 4.6billion euros ($6 billion) of 12- and 18-month bills with the1-year notes yielding 2.835 percent, compared with 3.07 percentwhen they were last auctioned on Aug. 21.

“If we manage to bring those borrowing costs down to acceptablelevels and that doesn't imply an intolerable sacrifice forSpaniards, we will have to analyze it,” Saenz said today in aninterview with Telecinco. “If we get our borrowing costs to fall,so we pay less, and if we manage to do that by doing reforms andwithout new sacrifices,” a rescue may be an option.