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Spain Bad Loans Ratio Surges to 11.23% as Defaults Climb

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Dec. 18 (Bloomberg) -- Bad loans as a proportion of total lending at Spanish banks climbed to a record 11.23 percent in October as the country’s economic slump led more companies and homeowners to miss credit payments.

The proportion rose from 10.71 percent in September as 7.4 billion euros ($9.8 billion) of loans soured in the month to take the total of doubtful credit in the banking system to 189.6 billion euros, the Bank of Spain said on its website today. The mortgage default rate jumped to 3.49 percent in the third quarter from 3.16 percent in the second quarter, the Bank of Spain said.

Spain’s economic slump, now in its fifth year, continues to drive defaults to record highs as lenders report rising impairments of corporate, home and consumer loans as well as those linked to real estate. Doubts about the ability of Spain’s weaker lenders to withstand mounting impairments of loans linked to real estate helped push the country to seek a European bailout for its banking system in June.

“It’s clear that these levels of bad loans are going to keep rising,” said Juan Pablo Lopez, an analyst at Espirito Santo Investment Bank. “The flows of entries into default are still very high.”

The default rate on loans to companies jumped to 16.56 percent in the third quarter from 14.9 percent in the second quarter, the Bank of Spain said. Defaults on loans for real estate-linked activities surged to 30.33 percent from 27.39 percent.

To contact the reporters on this story: Charles Penty in Madrid at; Sharon Smyth in Madrid at

To contact the editor responsible for this story: Frank Connelly at

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