Thursday, 19 January 2012


The bad debt ratio of Spain's banking sector rose for the eighth consecutive month in November to a new 17-year high, while deposits and loans shrunk further as the country edged towards a double-dip recession, data released Wednesday by the Bank of Spain showed. According to the data, 7.51% of loans held by banks were more than three months overdue for repayment in November, up from 7.42% in October. It is the highest percentage recorded since November 1994, and contrasts with bad debt levels below 1% of all loans in the years prior to the country's 2008 property bust. High unemployment, falling house prices and the sluggish economy likely will cause bad loans to continue to rise throughout this year and into 2013, said Gonçalo Guarda Garcia, an analyst at Portuguese brokerage BPI. Lenders have been struggling to cope with steep losses on loans extended to the real-estate and construction sector, as the country tackles the deepest economic downturn in decades and an escalating debt crisis in the euro zone that has sharply reduced their access to financial markets. Mr. Guarda Garcia also said he expects loans to shrink at a faster pace this year as lenders reduce risk on their balance sheets. The November data showed banks had cut lending by 2.54% on the year, while the pool of deposits fell at an annual rate of 2.14%. The new Spanish government said earlier this month that after stalling in the third quarter, the economy had contracted in the fourth quarter of 2011 and is set to shrink further this quarter. Overall, €134.1 billion ($171 billion) in loans were non-performing in November, up from €131.9 billion in October and €104.7 billion a year earlier. Banks had set aside a total of €73.82 billion to cover these soured loans at the end of November, up from €62.2 billion a year earlier. The amount of provisioning will likely rise sharply next month, as many of the country's lenders are expected to set aside a large chunk of their earnings to cover loan losses. As of November, Spain's banks had total of €1.79 trillion in loans outstanding, down from €1.84 trillion a year earlier.



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