Lending to households suffers record fall as banks remain parsimonious after bailout

A year and a half after receiving a 41.5-billion-euro bailout to clean up the sector and with floods of cheap money available from the European Central Bank (ECB), Spain's lenders continue to be loath to do what they are meant to do: lend.

According to figures released Monday by the Bank of Spain, credit to households in October fell by a record 4.7 percent from the previous month to 793.940 billion euros. Credit to families has been falling since the middle of 2010, largely as a result of banks tightening the tap on home loans, which also fell 4.7 percent in October to 614.860 billion euros, the lowest level since 2007 -- before the current crisis broke and a massive property boom started to go belly up, hastening the need for the bailout.

Lending to companies fell 10 percent in October to 1.081 trillion euros, also the lowest level since 2007.

Banks attribute the downturn in lending to a lack of "solvent demand." While it is true that rampant unemployment is a major deterrent, with the non-performing loan ratio hitting a record 12.6 percent, the European Commission in a report released last month suggested that there is also a "supply" problem, with the lack of lending in part attributable to the sector's preference for acquiring Spanish government debt, which pays much higher interest rates than those charged to them by the ECB for funding.

Banks also have their eyes on asset quality and stress tests that are to be carried out on European lenders by the ECB next year, which could mean them having to shore up their capital.