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15 Year high for Spanish bad debt

Fri 18th Feb 2011

The Bank of Spain reported earlier today how 'bad debt' for Spanish Banks increased to 5.81% in December, the highest level since 1995.

It said total bad debt held by the banks soared to 107.173 billion euros, a ratio to total loans of 5.81%, up from 5.68% in November and 5.66% October, the Bank of Spain said. The figure stood at 4.98% in October 2009 according to calculations by the media.

Spain's cajas account for around 50% of the country's lending, and have been heavily exposed to bad debt since the collapse of the property sector at the end of 2008.

Moody's credit ratings agency revised their rating on Spain in December, awarding the country a 'negative outlook' on the banks and warned that total economic losses could reach as much as 176 billion euros.

The Spanish government has been working to strengthen the cajas, considered by many to be the weak link in the country's banking system.

A number of mergers took place last year, reducing the total number of such Cajas from 45 to 17, but were still considered insufficient to bring confidence back to the market and the government is expected to approve a measure calling on them come up with fresh capital by September at some point today.

All eight of the largest Spanish banks passed the last round of EU stress tests to ascertain on their financial strength, but five of the cajas failed.

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