Loan default ratio moves above 12 percent for the first time on record

The non-performing ratio of the Spanish banking system moved above 12 percent in August for the first time since the Bank of Spain began compiling the current statistical series in 1962.

The amount of loans that have not been serviced in over 90 days increased by two billion euros in the month to 180.673 billion euros, the six month in a row that defaults have risen. The default ratio stood at 12.12 percent, up from 11.97 percent in July and from 10.52 percent in August of last year. The increase in loans classified as doubtful follows a change in the criteria imposed by the Bank of Spain for credit that has been refinanced or restructured.

The ratio was also boosted by a decline in outstanding loans to 1.490 trillion euros, the lowest level since 2006 before a massive property bubble burst and the crisis hit around the start of 2008. Both households and companies continue to deleverage, while demand for credit remains depressed by the ongoing weakness of the domestic economy.

The economy is expected to have emerged from its longest recession in close to half a century in the third quarter, but Bloomberg quoted Neil Smith, a bank analyst at Bankhaus Lampe, as saying that a sustained recovery would struggle to take hold. “We may see false starts in this recovery, but for the banks there is still a long way to go,” Smith said.

The non-performing ratio of mortgage of home mortgages rose to 5 percent due to rampant unemployment, which at the end of the second quarter stood at 26.3 percent.