Spanish Banks’ Bad Loan Ratio Climbs to Record 12% in July

Spanish defaults as a proportion of total lending jumped to a record in July as the recession-hit economy spurred missed payments and banks complied with new rules on classifying refinanced loans.

Non-performing loans accounted for 11.97 percent of lending in July compared with a revised 11.63 percent in June and 10.09 percent in the same month a year earlier, the Bank of Spain said on its website today. The stock of bad loans rose to 178.7 billion euros ($239 billion) in July from the previous month as 2.02 billion euros of credit soured, it said.

More companies and consumers are failing to keep up with repayments on borrowing as Spain struggles to emerge from an economic slump in its sixth year that left the unemployment rate at 26 percent. Banks are also in the process of reviewing as much as 208 billion euros of refinanced or restructured loans to meet a Sept. 30 deadline set by the Bank of Spain to ensure those assets have been properly classified.

Analysts point out that the bad loans ratio in Spain is much higher than the amount reported by the Bank of Spain should items such as assets transferred by state-aided lenders to a new bad bank enter the equation.

The total stock of non-performing loans may be as much as 285 billion euros, Exane BNP Paribas analysts including Santiago Lopez said in a report to clients last week. That’s equivalent to a bad loans ratio approaching 19 percent, they said.

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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