Bad debt at Spanish banks has risen to record levels, it was revealed today.
Data from the Bank of Spain showed that 9.86% of all debt held at Spanish banks is now in arrears and may not be repaid. It is the highest bad-loan ratio since the central bank records began in 1962.
The announcement will add to pressure on Spanish PM Mariano Rajoy to ask the European Central Bank to buy his government’s bonds as confidence among investors ebbs.
The news that so much Spanish bank debt is in arrears will also prompt questions about whether the previous banking sector 100 billion bailout requested in June by Rajoy will prove sufficient in the long term.
The results of a final EU stress test on Spain’s banks are due to be published on September 28, and this will decide which institutions will need bailout cash.
Some analysts suggest up to 60 billion will be needed almost straight away. The immediate impact of the bad news from the Spanish banking sector wasn’t felt in bond markets, with the country today selling 4.6 billion in 12- and 18-month loans.
Likewise, 10-year Spanish government debt also dipped beneath the psychologically significant 6%. Nevertheless, many market watchers believe Spain will need the aid of the ECB sooner rather than later.
“Sentiment towards Spain is beginning to deteriorate because of growing uncertainty about whether Madrid will request a bond-buying programme,” Nicholas Spiro at Spiro Sovereign Strategy said.
