How Bad is the Spanish Banking Sector?

From ZeroHedge

From ZeroHedge

Spanish Bad Loans At New Record, Deteriorate At Fastest Pace Since June | ZeroHedge.

Spain banks bad loans hit new high in October | Reuters.

Spain Bad Loans Ratio Surges to 11.23% as Defaults Climb – Bloomberg.

Non-performing loans at Spanish banks are increasing at a quickening pace. From September to October, bad loans rose from 10.71% to 11.23% to stand at over €189bn.

As bad as this number seems, it may have been massaged by the Bank of Spain. The lion’s share of bad loans in mortgages, other real estate and commercial lending all increased by more than 10%.

  • Residential Mortgages 3.16% to 3.49%, a 10.4% increase
  • Real Estate loans 27.39% to 30.33%,  a 10.7% increase
  • Business loans 14.9% to 16.56%, a 11.1% increase

Yet, total bad loans in the system only increased 4.9%. Something odd is occurring here. Is there another large loan sector doing very well that we are not being told about? More likely, the Bank of Spain is using “dynamic provisioning” to smooth out the numbers.

The most optimistic economists have Spain returning to growth in 2014. At the rate change reported by the Bank of Spain, in fourteen months bad loans would have risen to €369bn. At the rate of change of 10% estimated from the bulleted numbers above, bad loans will reach that same figure in about seven months.

The €100bn bank bailout is only the beginning. Much more will be needed to recapitalize Spain’s banks. Will the Germans pay?

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