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Venezuelan President Hugo Chavez dispelled speculation his government would backtrack from the nationalization of the local Grupo Santander unit and said his government would restart negotiations with the Spanish banking group.

"We're not retreating," Chavez said during a cabinet meeting broadcast Thursday night. The nationalization of the local Santander franchise, known as Banco de Venezuela (BVL.CA), "will serve to strengthen our banking system," he said.

Chavez first announced the nationalization of the Santander (STD) unit in July, intervening as the Spanish group started to negotiate the sale of the bank to a local financial group.

There has been mounting speculation Chavez would back down from the nationalization as he faces a financial crunch because of the drop in the price of oil, which accounts for 50% of state revenue.

Local research firm Econalitica says the bank, one of the largest in Venezuela, could cost $890 million.

Spokesmen for Santander in Caracas and Madrid declined to comment. There was no activity in Banco de Venezuela's shares in the Caracas stock exchange, which traded at VEB0.4 ($0.18).

Faced with lower oil prices, Chavez has recently gone on the offensive. This week the National Assembly passed a new law giving him control over airports and seaports, some of which were under the control of opposition leaders.

Earlier this month, he seized control of Cargill Inc.'s rice operations in Venezuela and threatened to expropriate the country's largest food producer.

-By Darcy Crowe, Dow Jones Newswires; (58) 212 905 6304; darcy.crowe@dowjones.com