Spain bank bad debts at 15-year high, Central Bank says

Spanish banks’ non-performing loans ratio, a key indicator of their financial health, jumped to 5.81 per cent in December, the highest level since 1995, the Bank of Spain said late last week.

It said total bad debt held by the banks soared to $145.17 billion, a ratio to total loans of 5.81 per cent, up from 5.68 per cent in November and 5.66 per cent in October, the Bank of Spain said.

The rate, which was 4.98 per cent in October 2009, is the highest since December 1995, according to calculations by Spanish media.

Spain’s lenders, especially its regional savings banks that account for about half of all lending in the country, have been heavily exposed to bad debt since the collapse of the property sector at the end of 2008.

Credit rating agency Moody’s in December issued a negative outlook on Spain’s banks and warned that total economic losses could reach €176 billion.

To allay these concerns the Spanish government is racing to strengthen the regional lenders, considered the weak link in the country’s banking system.

The banks are at the heart of market fears that the country could need a bailout from the European Union and the International Monetary Fund like the ones granted Ireland and Greece last year.

All eight major Spanish banks passed European Union bank stress tests conducted in July on their ability to weather a new crisis but five of the regional saving banks failed.

The markets have since cast doubt on the tests, which gave a pass to the now bailed out Allied Irish Banks and Bank of Ireland, with European leaders promising fresh and more stringent testing.