BAD loans held by Spanish banks jumped more than 10 percent in June, taking the rise to 164 percent over 12 months following an economic slowdown and the bursting of a property bubble, early data from the Bank of Spain showed yesterday.
Bad loans totalled 28.4 billion euros ($42.34 billion) in June, or 1.6 percent of total loans, up 2.96 billion euros from May when the bad loan ratio was 1.45 percent, showed the data which covered both commercial banks and regional savings banks controlled by regional governments.
The data still does not include the effects of June's insolvency of property company Martinsa Fadesa which filed for administration with debts of more than 6 billion euros.
Bad debts have soared as Spain's economy has felt the full force of the credit crunch, which has popped a property bubble and dragged down quarterly economic growth to just 0.1 percent in the second quarter from 0.9 percent in the same quarter last year.
Spain's banking system has held up fairly well, due to relatively small exposure to the subprime crisis in the United States and also to the refusal by the Bank of Spain to allow banks to invest in the complex derivatives which have caused so much havoc elsewhere.
However analysts point out that many banks, Santander and Banesto among them, have bought property from their debtors.
That reduces potential losses in the event of a developer going bust and also provides the builder with liquidity which it can use to pay debts and so massage a creditor's non-performing loan ratio. Savings banks had a bad loan ratio of 1.9 percent on loans totalling 870 billion euros, while commercial banks had a ratio of 1.3 percent on a loan book of 800 billion euros.
The country's two biggest banks, Santander and BBVA, both posted healthy rises in net profit in the first half.
Everybody is suffering the bite of the credit crunch.
Prices in Spain rose at their fastest annual rate for 15 years in July, driven by rising food and fuel costs.
The annual inflation rate climbed to 5.3% in July, up from 5% in June.
Transport costs were 10.6% higher than a year earlier, the National Institute of Statistics said, with food prices up 7% compared with July 2007.
Spanish inflation is above the eurozone average of 4.1%, but recent falls in the price of crude oil could bring the rate down.