Spain Banks Face More Pain as Worst-Case Scenario Turns Real

Thursday, October 18, 2012
By Paul Martin

By Charles Penty
Bloomberg.com
Oct 18, 2012

Spain’s banks face more loan losses as the pace of an economic slump risks turning a worst-case scenario dismissed in stress tests into reality.

Bad loans as a proportion of total lending jumped to a record 10.5 percent in August from a restated 10.1 percent in July as 9.3 billion euros ($12.2 billion) of loans were newly classified as being in default, according to data published by the Bank of Spain on its website today. The ratio has climbed for 17 straight months from 0.72 percent in December 2006, before Spain’s property boom turned to bust.

Spanish bank stress tests by management consultants Oliver Wyman have factored in an economic contraction totaling 6.5 percent from 2012 to 2014 in an adverse scenario that the government and Bank of Spain said has a probability of about 1 percent. Analysts at Nomura and Citigroup (C) Inc. disagree, saying spending cuts and economic conditions mean the worst-case outcome already looks feasible.

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