Spanish Lending Falls Most on Record as Deposits Also Decline

Spanish lending fell an annual 2.6 percent in September, the biggest decline since the Bank of Spain’s records started in 1963. Deposits also slid.

While lending rose 0.05 percent from August, the annual decline was the sharpest recorded on the regulator’s database with data on lending going back 48 years. Bank deposits fell 0.2 percent in September from August to the lowest level since May 2010, the Bank of Spain said.

Financing stresses as Europe’s debt crisis deepens are contributing to tighter credit conditions as lenders such as Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA) allow their Spanish loan books to shrink. Higher financing costs and a weaker supply of loans are hitting the growth of the economy, which stalled in the third quarter, undermining confidence in the government’s ability to meet targets on cutting its deficit.

The decline in deposits from September a year ago was 1.6 percent, the regulator said. Deposits have been slipping month- on-month since June and have fallen 2.3 percent since their peak this year in March of 1.43 trillion euros ($1.93 trillion).

Spanish banks have stepped up competition to attract customer savings this year as an alternative to wholesale debt markets, which have frozen as contagion from the sovereign debt crisis spreads.

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net;

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net