Spanish banks reported more bad loans and lower lending and deposits in October, hurt by the fallout of the country’s property crash and the European sovereign debt crisis.
The ratio of bad loans as a proportion of total lending climbed to 7.42 percent, the highest level since 1994, from 7.16 percent in September and 5.68 percent a year earlier as the value of borrowings in default rose to 131.9 billion euros ($171.9 billion), the Bank of Spain in Madrid said in a statement today. Lending fell 2.5 percent from a year ago, following a record 2.6 percent drop in September, and deposits slid 2.2 percent to their lowest level since 2008.
Rising defaults and declining loans and deposits show how banks are suffering from the fallout of Spain’s property slump and a wider European debt crisis that has shut them out of wholesale debt markets. Spain’s Prime Minister-elect Mariano Rajoy, who is making an inaugural speech to parliament today, said that a “second wave” of restructuring of Spain’s banks is inevitable, including more mergers.
“What we have been saying for a while, and I think the banks themselves have been in denial on this, is that the asset quality decline has not bottomed out yet because unemployment is still going up,” said Inigo Lecubarri, who helps manage about $300 million at Abaco Financials Fund in London. “A non- performing loans ratio of 7.4 percent is already very bad. Ten percent would be catastrophic and it’s not impossible we could get there.”
.................................................................
European Ministers Seek $261B IMF Crisis Funds
European finance ministers will today seek to meet a self-imposed deadline for drawing additional aid to the debt crisis and to form new budget rules as investor confidence that a comprehensive solution is achievable wanes.
Euro-area finance ministers will hold a conference call at 3:30 p.m. Brussels time to discuss 200 billion euros ($261 billion) in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at a Dec. 9 European Union summit, according to two people familiar with the planning.
“They’ll try to get as much done as they can before Christmas, but it’s doubtful they’ll put markets in a Christmas mood,” Carsten Brzeski, an economist at ING Group in Brussels, said in an interview. “There is still so much uncertainty.”
The accord to ratchet up budget rules failed to ease concern that the monetary union risks buckling under the weight of the two-year-old crisis. Fitch Ratings lowered France’s credit outlook and put other euro-area nations on review Dec. 16, saying an overall crisis solution may be “technically and politically beyond reach.” Belgium’s rating was cut two levels to Aa3 by Moody’s Investors Service on the same day.
........................................................................
U.K. Consumers’ Retrenchment Creating Drag on Economic Recovery, BOE Says
British households are cutting back on spending as they prepare for a worsening economic environment that’s threatening jobs and creating a drag on the recovery, the Bank of England said.
Fifty-six percent of households in a survey said income available after tax, insurance, housing costs, loan repayments and bills has fallen over the past year, the bank said in its Quarterly Bulletin in London today. Thirty-one percent reported no change and 13 percent said their income had risen.
The recovery “has been disappointing and there are signs that output growth has slowed in recent months,” Chief Economist Spencer Dale wrote in the bulletin. “An important feature of this recovery relative to past ones -- and a key reason why the pace of the recovery has been disappointing -- is the weakness in household consumption.”
An “important” impact on incomes was the increase in sales tax in January, the bank said. Chancellor of the Exchequer George Osborne is sticking to plans for the tightest fiscal squeeze since World War II as investors punish European nations for failing to manage their debts. Dale said last week the U.K. faces the possibility of contraction as the region’s turmoil worsens.
