Loan default rate hits new record high

One of the main reasons why Spanish banks are leery about lending these days was made patently clear in the latest loan default figures released by the Bank of Spain on Friday

The non-performing loan ratio of the financial sector rose from 12.99 percent in October to 13.08 percent in November, the highest level since the central bank began the current historical series some 50 years ago. The ratio in November of 2012 was 11.4 percent.

The central bank said loans that had not been serviced for over 90 days as of the end of November rose by 1.5 billion euros, or 0.8 percent, to 192.5 billion, also a new record. Total outstanding loans rose by 2.642 billion euros to 1.47 trillion, reversing a downward trend as a result of deleveraging by companies and households.

The deterioration in the banking sector’s balance sheets reflects the state of the economy, which has recently initiated a nascent but weak recovery after the longest recession in the past three decades.

The default rate was also boosted by new criteria introduced by the Bank of Spain for classifying refinanced loans, which resulted in an increase of some 20.5 billion euros in doubtful credit.

With unemployment still at 26 percent, it’s unlikely that the bad loans ratio will peak before the end of this year, Bloomberg quoted Fernando Pascual, an analyst at Espírito Santo Investment Bank in Madrid, as saying. “There is still work to do in provisioning,” Pascual said.