Record bad loans still hitting Spain’s banks

THE BANK of Spain suggested yesterday that bad loans are still haunting the country’s financial system, with a record 11.6 per cent of lending going to people categorised as doubtful debtors.

According to the central bank’s balance sheet, which calculates total lending by Spanish credit institutions, in June €176.42bn (£150.59bn) was extended to customers who are unlikely to be able to repay, more than a tenth of the €1.52 trillion which has been lent out in total.

Back in 2007, before the financial crisis, the Bank said that the proportion of doubtful debtors was not even one per cent, quickly rising upward as the country’s banks came under pressure, the Spanish property market collapsed and the euro crisis unfolded. Though Spain’s banks had €350bn less extended in June than it had lent out in 2008, the proportion going to debtors who are unlikely to repay has not fallen as quickly.

Many Spanish homeowners are still in negative equity, holding property that is worth less than the mortgages originally taken out to purchase their homes. In the decade leading up to the crash in 2008, house prices in Spain nearly tripled, before the financial crisis prompted a huge decline.

Others lenders have lost their jobs since the crash, and have little means to pay back debts. Spanish unemployment stood at 26.3 per cent in the second quarter, the second highest in the Eurozone.