Bank lending to companies continues to decline

The pace of decline in lending to Spanish companies accelerated in November, exacerbating efforts to pull the country out of recession, according to figures released Friday by the Bank of Spain.

The central bank said outside loans as of the end of November stood at 1.19 trillion euros, the lowest level in five years. That represented a decline of 4.6 percent compared with the same month a year earlier, and four percentage points more than in October.

Loans by Spanish lenders declined an annual 7.2 percent, while credit granted by foreign banks fell only 1.6 percent. One of the reasons behind the decline is weak demand as a result of the economic downturn, although banks also continued to encounter problems in securing funding at reasonable rates because of the increase in Spain’s risk premium. The wholesale funding markets have been largely closed, with banks relying on deposits and borrowings from the European Central Bank.

The banks are also facing growing loan defaults. According to the Bank of Spain, the non-performing loan ratio moved above 11 percent for the first time on record. The government has secured a loan from the European Union to help recapitalize the banking system, which has been badly hit by its over-exposure to the real estate sector, which has been in the doldrums since around the start of 2008 after a massive bubble burst.