Spain banks owe more than bailout loan total

A member of the bank's private security staff stands inside a branch of Sabadell Atlantico bank on March 30, 2012 in Barcelona, Spain.
David Ramos/Getty Images

(Money Watch) Spain's banks have at least $191 billion loans on their books that are at high risk of not being repaid, the Bank of Spain reported today. That is $69 billion more than the total bailout loan offered to the banks by the EU last month -- and with Spain's economy in a recession and an unemployment rate of more than 23 percent, the number of bad loans is more likely to climb than fall. Spain is supposed to sign an agreement with the European Union to secure $122 billion of bailout funds for its struggling banks Friday.

Bond markets reacted strongly to this news. In mid-day trading interest rates on the 10-year Spanish bond were just below the critical 7 percent level. Shorter term bonds also hit dangerous highs. The 5 year was at 6.3 percent and the 2-year was just below 5 percent.

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The Bank of Spain said today that in May the figure for "doubtful" loans was 8.95 percent of total lending -- the 14th month in a row that number had increased. In 2008 the banks' total number of doubtful loans of was 3.37 percent of all lending.

The central bank report also showed bank deposits saw a record decline in May from a year earlier. Total deposits from the private sector shrank by 5.75 percent that month to $1.629 trillion. The drop in deposits in May coincided with the government's emergency takeover of one of the country's largest lenders, Bankia.

In another bad sign for the economy, house prices in the second quarter declined at the fastest pace since the start of the crisis, according to the government. The country's house price index dropped 8.3 percent from a year earlier, indicating that the free-falling real-estate market has yet to hit bottom. The collapse of the real estate sector is at the heart of Spain's bank problems, as lenders struggle to digest billions in bad real-estate loans.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.