As Spain continues to be gripped by economic downturn, rising unemployment and possible recession bank lending slowed at a record pace.
In December lending fell by 3.3% compared to the previous year, the largest single drop since Bank of Spain records began 50 years ago. Bad loans represent 7.61% of the total, up from 7.52% in November as borrowing considered “doubtful” rose to a staggering 136 billion euros. Five years ago, before the crisis struck this figure was around 11 billion.
Banks remain cautious about lending with the prospect of a second recession slowing the demand for mortgages. Economists estimate the Spanish economy could shrink up to 1.5% in 2012, while unemployment, currently at 23%, is also likely to increase throughout the year and into 2013.
After the crisis took hold of Spain in 2008 many bankrupt developers and defaulting clients forced the banks to add many properties and building plots to their books. It is these bad assets that are weighing heavily on the banks performance figures.
Speaking on state radio yesterday, Economy Minister Luis de Guindos said that the government is currently engaged with the banks to try to reduce the number of evictions being enforced against people who are unable to keep up repayments. Many of the people affected bought their homes before the crash when prices were higher and borrowing was easy. Some blame the banks for irresponsible lending. Others blame the borrowers for borrowing beyond their means.
Protest and help groups have been set up all over Spain to try and prevent more people being evicted from their homes by the banks. In Madrid this week one defaulting borrower was granted a further eight days in which to pay after crowds gathered around his property to prevent the bank repossessing his family home.