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May 27, 2017

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Banks' bad loans hit record ratio: Spain

MADRID -- The ratio of bad loans held by Spanish banks, mainly for property, hit in May the highest level since 1994, at 8.95 percent, the country's central bank said on Wednesday.

The value of loans considered "doubtful," at risk of not being repaid, reached 155.841 billion euros (US$192 billion), equivalent to 8.95 percent of total loans extended by Spanish banks, figures released by the Bank of Spain showed.

The figure has been steadily rising this year, from 8.15 percent in February to 8.37 and 8.72 percent in the subsequent two months, and is likely to climb significantly higher still, according to one economist.

In late 2008, the ratio of bad loans held by banks in Spain was only 3.37 percent, but a bursting real-estate bubble revealed a core weakness that has resulted in Madrid requiring help from eurozone partners.

On June 9, eurozone countries unveiled a plan that would provide up to 100 billion euros to underpin distressed Spanish banks, which are to concentrate their risky loans in a so-called bad bank by November.

Aid for Spanish banks became a top priority after Bankia, the third largest by assets, called in May for a government bailout estimated to cost 23.5 billion euros.

Eurozone finance ministers are to determine on Friday the details of their plan to help the banks, which should lead to the unblocking of 30 billion euros by the end of the month.

That sum is to be held in reserve in case a bank urgently needs fresh cash.

On Monday, the International Monetary Fund highlighted concern about the precarious situation at Spanish banks as it forecast that Spain would remain in recession next year.

For 2012, the Spanish government expects economic activity to contract by 1.7 percent.

IHS Global Insight economist Raj Badiani forecast that "with the recession now expected to last throughout 2012 and 2013, the bad bank loan ratio is likely to remain on an upward trajectory, and could breach 10 percent by the second half of 2013."

Badiani added that "we expect Greece to exit the euro no later than the third quarter of 2013, with the Spanish economy projected to a take a considerable hit" as a result.

Falling Spanish property prices in particular "would place additional pressure on existing bank loans to the construction sector and property services," the economist noted.

They stood "at a still-substantial 391.889 billion euros, or 36.9 percent of nominal GDP (gross domestic product) in the first quarter of 2012," he said.

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