Spanish Banks’ Bad-Loans Ratio Increased to 7.91% in January

Spanish banks’ bad loans as a proportion of total lending jumped in January to the highest level since 1994 as the country’s recession and rising unemployment forced more borrowers to miss loan payments.

The bad-loans ratio climbed to 7.91 percent from 7.62 percent in December and 6.06 percent in the same month a year earlier, the Bank of Spain said on its website today. Lending fell (SPLODETO) 3.1 percent in January from a year ago and deposits dropped 4.2 percent, the regulator said.

The outlook for a protracted recession in Spain is making banks more cautious about lending as the unemployment rate, which the government says will exceed 24 percent this year, drives more borrowers into default. Spanish lenders have 140 billion euros ($185 billion) of loans that are classified as “doubtful” (SPLODEFA) by the Bank of Spain, compared with about 11 billion euros in 2006.

“Spain is heading into a recessionary phase again with more austerity and rising unemployment and that’s all pretty negative for asset quality,” Daragh Quinn, an analyst at Nomura International in Madrid, said today by telephone.

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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