Spain Loans, Deposits Fall at Record Pace Ahead of Cleanup
Loans and deposits at Spanish lenders fell at their fastest pace on record in November and defaults jumped as Prime Minister Mariano Rajoy prepared measures forcing banks to recognize more real-estate losses.
Lending fell by 2.94 percent from a year ago and deposits slid 2.99 percent, the biggest drop since the regulator’s records started half a century ago, the Bank of Spain said on its website today. Bad loans as a proportion of total lending climbed to 7.51 percent in November, the highest level since 1994, from 7.42 percent in October and 5.69 percent a year earlier, the regulator said.
Rising defaults together with declining loans and deposits show that banks are being hit by Spain’s property slump and a wider European debt crisis that’s made it harder for them to line up financing. Rajoy reiterated in a Jan. 14 speech that he’s preparing new rules to make banks recognize more losses on real estate loans made before Spain’s property crash and forcing weaker lenders into mergers.
“The trend in credit is going to look worse,” said Jose Carlos Diez, chief economist at Intermoney Valores SA, in a phone interview. He estimates Spain’s economy will contract by as much as 1 percent this year after growing by 0.7 percent in 2011, he said.
Spanish banks are scaling back lending as they adjust to weakening demand in an economy burdened by spending cuts and tax increases. Rajoy is attempting to tackle a deficit that government said reached 8 percent of gross domestic product last year, higher than the previous administration’s 6 percent target.
Rajoy said yesterday his cabinet would approve new rules for an overhaul of banks by mid-February.
Banco Espanol de Credito SA (BTO), a Spanish retail unit of Banco Santander SA (SAN), said Jan. 12 its loan book shrank by 8.6 percent in 2011 and deposits contracted by 15 percent. The bank also took a 280 million-euro ($359 million) charge for souring real estate loans.
To contact the reporter 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
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