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Business

Bad loans at Spanish bank hit new all-time high

Loans in Spanish banks at risk of not being repaid have reached record levels. Madrid has said increasing unemployment is contributing to the rise, with more and more people unable to handle credit lines.

Bad loans deposited at banks across Spain remain a major source of concern for financial markets, the central bank in Madrid said on Thursday. It reported a record level of acid assets for August.

The Bank of Spain warned the bad loans ratio climbed to 10.51 percent of the total from a revised 10.1 percent in the previous month. Overall, 178.6 billion euros ($234 billion) in loans were at risk of not being repaid. It marked the highest ratio since the central bank began compiling corresponding data in 1962.

Spanish banks have been suffering from rising bad loans since the collapse of a huge property bubble in 2008, causing defaults by home builders and mortgage holders to rise tremendously.

Joblessness an added irritation

The bad loans ratio had also risen because of soaring unemployment, the central bank commented. It said more and more Spaniards had no longer been in a position to pay back credits. Assets turn into bad loans, if due repayments are not made for three months in a row.

In order to help ailing Spanish banks, eurozone authorities agreed in June to grant a rescue loan of up to 100 billion euros, with a recent independent audit finding the banks would need about 53 billion euros.

But the government announced it would ask for only 40 billion euros from the bailout fund, claiming that some of the banks could raise part of the required capital themselves. Madrid also approved the creation of a "bad bank" which would absorb troubled property assets with a view to cleaning up the financial sector and restore investor confidence.

hg/pfd (dpa, AFP)