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Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup


Spain’s surging bad loans are spurring doubt on whether the government can persuade investors that it can clean up the country’s banks without further damaging public finances.

Non-performing loans as a proportion of total lending jumped to 8.16 percent in February, the highest level since 1994, from less than 1 percent in 2007, according to Bank of Spain data published today. The ratio rose from 7.91 percent in January as 3.8 billion euros of loans soured in February, a 110 percent increase from the same month a year ago. That takes the total credit in the economy that the regulator lists as “doubtful” to 143.8 billion euros.

Defaults are rising and credit is shrinking at a record pace as 24 percent unemployment corrodes the quality of loans built up in the country’s credit boom and saps the appetite of banks to make new ones. Doubts about the extent of Spain’s non- performing loans problem is hurting bank stocks and driving up the government’s borrowing costs on investor concern that the expense of propping up ailing lenders may add to the debt burden.

“One of our concerns in Spain is to what extent contingent liabilities could pass to the central government,” said Andrew Bosomworth, Pacific Investment Management Co.’s Munich-based head of portfolio management. Non-performing loans “will have to rise when you take into account the unemployment rate and what’s happening with the economy,” he said.

‘Further Hole’

Prime Minister Mariano Rajoy is battling to convince investors Spain’s finances are under control after his refusal last month to meet deficit targets set by the European Commission. By seeking to cut the budget deficit to 3 percent of gross domestic product from 8.5 percent over two years, he risks driving bad loans as the deepest austerity measures in three decades push the economy back into a recession.

Headlines:

  1. Spanish banks’ bad-loan ratio hits 18-year high
  2. Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup
  3. Italy to delay balanced budget by a year: report
  4. Spanish Banks Gorging on Sovereign Bonds Shifts Risk to Taxpayer
  5. State Budget Cuts Could Take Away Hospice Care For Poor (Illinois)
  6. Portugal’s PM: No guarantees of return to markets on time
  7. Local governments want debt relief (New York…Video)
  8. L.A. County courts face $30 million in cuts
  9. IMF Says European Banks May Have to Sell $3.8 Trillion in Assets
  10. Worst Yet to Come as Crisis Rescue Cash Ebbs, Deutsche Bank Says
  11. Crisis and Leviathan: An interview with Robert Higgs (McAlvany Audio)
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