Spanish banks hurt by boom in bad loans as economy weakens

City A.M. Reporter
SPANISH banks’ bad loans rose to their highest level since October 1994 in February, Bank of Spain data showed yesterday.

Bad loans now account for 8.2 per cent of their credit portfolios, as the sector battles sliding house prices and a looming recession.

Banks are facing a new wave of loan defaults as an economic crisis deepens and analysts say some may not survive as the government implements sweeping budget cuts that will only add to Spanish households’ problems with debt.

Non-performing loans increased by €3.8bn (£3.1bn) to €143.8bn from January, when they totalled 7.9 per cent of total debt portfolios.

That picture – driven by the collapse of a housing boom in the global financial turmoil of 2008 – is at the heart of problems for Spanish banks that have seen other institutions refuse to lend to them and forced some to rely on the European Central Bank for funding.

Spain’s unemployment rate is already the highest in the EU and is expected to rise further, putting more pressure on consumers.

House prices also fell another 7.2 per cent in the first quarter from a year earlier, according to the Spanish Public Works Ministry.

The Bank of Spain on Tuesday approved all 135 Spanish banks’ plans to boost capital but said some may face difficulties meeting tough requirements set by the government.