Spain will consider seeking a bailout if the conditions imposed are acceptable, Deputy Prime Minister Soraya Saenz de Santamaria said as loan defaults at Spanish banks climbed and lending dropped.

Bad loans in the country's banking system rose to a record 9.86 percent in July and lending fell 4.53 percent from the year-earlier period, the Madrid-based Bank of Spain said today. Spain sold 4.6 billion euros ($6 billion) of 12- and 18-month bills with the 1-year notes yielding 2.835 percent, compared with 3.07 percent when they were last auctioned on Aug. 21.

“If we manage to bring those borrowing costs down to acceptable levels and that doesn't imply an intolerable sacrifice for Spaniards, we will have to analyze it,” Saenz said today in an interview with Telecinco. “If we get our borrowing costs to fall, so we pay less, and if we manage to do that by doing reforms and without new sacrifices,” a rescue may be an option.