Spain banks’ bad debts hit new high

Spanish banks’ non-performing loans ratio, a key indicator of their financial health, jumped to 6.19 per cent in February, the highest level since September 1995, the Bank of Spain said yesterday.

The bad loan rate was 6.06 per cent in January, which was the highest level since November 1995.

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.

Moody’s last month downgraded Spain’s credit rating by one notch to “Aa2” and warned it may do so again on fears the government will be unable to meet its targets of slashing the public deficit and on concerns over the cost of restructuring the banking sector.

Spain’s finances and economy, with a jobless rate of just over 20 per cent the highest in the industrialised world, have prompted fears it may need a costly EU bailout like Greece, Ireland and Portugal.

However, markets have shown renewed confidence in the Spanish economy recently, as evidenced by the lower yields on government bond sales.

The government has strengthened bank balance sheets, cut spending and pursued economic reforms to allay market jitters over the outlook for Spain’s finances.