Spanish banks' bad loans soar

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IANS/EFE | 18 Feb, 2012
Spanish banks' ratio of non-performing loans to total loans came in at 7.61 percent last year, the highest percentage since 1994.

According to provisional data published Friday by Spain's central bank, the bad debt ratio of the country's banking sector was one-tenth of a percent higher in December than the previous month, when it came in at 7.51 percent.

December marked the sixth-consecutive month that the bad loans ratio had risen. The percentage stood at 5.81 percent in 2010.

The central bank's figures showed that Spanish banks held 135.75 billion euros ($178.5 billion) worth of non-performing loans in December, compared with 134.75 billion euros ($177 billion) in the previous month.

The central bank's new data was released at a time when Prime Minister Mariano Rajoy's administration is seeking to shore up Spain's banking sector.

An overhaul announced earlier this month and approved Thursday by Parliament by a wide margin forces banks to boost provisions against toxic real-estate assets by an additional 52 billion euros ($68 billion).

Banks unable to come up with sufficient loan-loss buffers will be forced to merge and the new entity will have an extra year to meet the provisions requirement. Financial institutions that choose not to merge must meet the requirements by the end of 2012.

Lenders that opt to merge must present their plans before a May 31 deadline and will be eligible to receive financing from the government's Fund for Orderly Bank Restructuring, or FROB, whose capital will be boosted from 9 billion euros to 15 billion euros.

The government says the goal of the financial overhaul is to achieve a healthier banking sector and facilitate the flow of credit to boost business and household spending and create jobs in a country where 5.2 million people are out of work, equivalent to an unemployment rate of 23 percent.

In addition to moves to overhaul the financial sector and tackle sky-high unemployment, Rajoy's administration must rein in the country's budget deficit relative to gross domestic product and bring that ratio in line with European Union mandates.

The effects of the global recession were aggravated in Spain by the collapse of a long construction and property boom that had made the country's economy the envy of most of Madrid's European partners.