Spain Lending Shrinks at Record Pace as Defaults Rise

 

Spanish banks reduced lending at a record pace and defaults mounted as the country's recession and rising unemployment took a toll on their ability to make loans to solvent borrowers.

Lending fell by 3.3% in December from a year before, the biggest drop since Bank of Spain records started half a century ago, the regulator said on its website today. Bad loans as a proportion of total loans rose to 7.61% from 7.52% in November as borrowing considered "doubtful" jumped to 136 billion euros from about 11 billion euros five years ago, before Spain's property crash.

The prospect of a protracted recession in Spain is curbing the appetite for loans and making banks more cautious about lending. The economy may shrink 1.5% this year, according to central bank forecasts, while unemployment stands at 23%. Exane BNP Paribas predicts an economic contraction could stretch through 2013.

"You have a credit crunch in Spain," said Gilles Moec, co-chief European economist at Deutsche Bank AG in London. "It's another reason for recession this year."

The new government of Mariano Rajoy announced on Feb. 2 plans to force lenders to take their share of about 50 billion euros in provisions and capital charges for real estate as a step toward freeing up lending in the economy.

Banks piled up apartments and building land on their balance sheets as loans to property developers and mortgage borrowers soured during the crash. The government is talking to banks to try to reduce the number of people evicted from their homes for failing to pay their mortgages, Economy Minister Luis de Guindos said in an interview with state radio RNE late yesterday.

Deposits gathered by Spanish lenders declined 4.6 percent from a year earlier, the Bank of Spain said. Deposits increased 0.5% from November, the regulator said.