Spanish banks' bad loans, a major source of concern to financial markets, rose in July to the highest level in 16 years at 6.94%, the Bank of Spain said today.
Bank loans whose recovery is in doubt amounted to €124.7 billion, or 6.94% of total assets, in July - the highest ratio since February 1995, the central bank said in a report.
Earlier, reports said that the Bank of Spain has promised to cover up to €20 billion in losses at Caja Mediterraneo as it seeks to offload the troubled savings bank.
The Bank of Spain took control of the bank in July and is now trying to sell it off.
According to the daily El Mundo, the central bank let investors know it would cover up to €20 billion of losses, the estimated amount of property-related assets at risk in Caja Mediterraneo (CAM), if necessary.
If confirmed, the central bank intervention would be "the costliest for the public treasury in Spanish financial sector history," the newspaper said, without identifying its source.
The price tag could unnerve financial markets - it is equal to a government estimate of the maximum cost of recapitalising Spain's entire banking sector.
The Bank of Spain injected €2.8 billion and opened a €3 billion line of credit for the CAM when it took control of the institution in July. But in early September CAM revealed a first-half loss of €1.136 billion and a high 19% ratio of bad loans, mostly property-related credits whose recovery was doubtful.
The average bad loan ratio for the Spanish banking sector was 6.416% in June.
According to El Mundo, the Bank of Spain is trying to complete the sale before general elections set for November 20. It said rival banks Santander, BBVA and CaixaBank, as well as a union of three Basque banks, were among candidates to buy the CAM, with Santander the favourite.
