The bad loans ratio for Spanish banks rose to its highest level in almost 15 years in October, the Bank of Spain said on Friday, as a stagnant economy and high unemployment weighed on debt repayments.
Unpaid loans by Spain's financial sector, including banks, financial cooperatives and retail credit cards, rose to 5.66 percent as a ratio of total lending from 5.49 percent a month earlier, the central bank said.
Spanish banks have seen unpaid loans rise steadily since the bursting of a decade-long property bubble sent shockwaves through the economy and left around one in five Spaniards out of work.
Problem debts are a big issue since investors have driven up Spain's borrowing costs, largely on concerns over possible hidden bad debt at banks that could potentially force a government bail out and push the country into a debt crisis and an Irish-style bailout.
Spain's banks are highly exposed to the crashed property sector and face rising competition for funds, both from international debt markets and local deposits.
Lingering doubts over the size of potential losses on the banks' balance sheets prompted Moody's to reiterate its negative outlook on the sector earlier this week and mark the country's sovereign debt for a possible downgrade.
We expect difficult economic conditions, continued asset quality deterioration and the Spanish government's fiscal austerity plans to negatively affect banks' profitability, capitalization and access to market funding, Moody's said on Monday.
The Bank of Spain has given savings banks until the end of the year to publish detailed statements of their accounts in an effort to combat uncertainty over possible losses.
Listed banks, such as Santander
We are convinced that this process will help clear up any doubts and show that some analyses of the financial system, especially the savings banks, will be proved wrong as was seen after July's stress tests, Prime Minister Jose Luis Rodriguez Zapatero said on Friday in Brussels.
Spain put its entire banking system up for inspection in the July Europe-wide stress tests. Five savings banks failed the tests.
Under the worst-case scenario in the stress tests, the banking system would need 1.835 billion euros ($2.44 billion) in additional capital, the Bank of Spain said. But despite a forced consolidation of savings banks and higher provision requirements imposed by the central bank, investors remain nervous.
The Bank of Spain's data showed bad debts rose to 103.7 billion euros in October from 101.3 billion in September after falling slightly from August. Savings banks saw their bad loan ratio rise to 5.5 percent from 5.34 percent, while listed banks saw the ratio rise to 5.8 percent from 5.58 percent.
(Editing by Hans Peters and David Holmes)