The ratio of bad loans at Spanish banks shot to an 18-year high in February, official figures showed yesterday, as the banks struggled with a mass of deteriorating property-related loans.

Spanish banks are a key concern on financial markets because of the declining value of the huge loans they allowed to build up during a property bubble that collapsed in 2008.

Doubtful loans in February amounted to €143.8 billion rising to 8.15 per cent of total credits – the highest ratio since 1994 – from 7.91 per cent in January, the Bank of Spain said.

A loan is categorised as doubtful when the borrower has not made a payment for at least three months.

Prime Minister Mariano Rajoy’s centre-right government has made cleaning up the banks a priority and is requiring them to set aside more than €50 billion to boost their balance sheets.

The Bank of Spain approved the plan Tuesday, obliging banks to allocate €29 billion to bad loan provisions and €15.6 billion to raise the proportion of rock-solid core capital.

Those sums are in addition to €9.2 billion in provisions already set aside by the banks last year, bringing the total in extra capital to €53.8 billion. Banks are being told to find the money for the new provisions from their own profits or by issuing new shares, although the central bank has not ruled out state intervention.