The ratio of bad loans at Spanish banks shot to an 18-year high in February, official figures showed today.
The country's banks are struggling with a mass of deteriorating property-related loans.
Spanish banks are a key concern on financial markets because of the declining value of the huge loans they allowed to build up during a property bubble that collapsed in 2008.
Doubtful loans in February amounted to €143.8 billion, rising to 8.15% of total credits - the highest ratio since 1994 - from 7.91% in January.
A loan is categorised as doubtful when the borrower has not made a payment for at least three months.
Prime Minister Mariano Rajoy's government has made cleaning up the banks a priority and is requiring them to set aside more than €50 billion to boost their balance sheets.
The Bank of Spain approved the plan today, obliging banks to allocate €29 billion to bad loan provisions and €15.6 billion to raise the proportion of rock-solid core capital. Those sums are in addition to €9.2 billion in provisions already set aside by the banks last year, bringing the total in extra capital to €53.8 billion.
Banks are being told to find the money for the new provisions from their own profits or by issuing new shares, although the central bank has not ruled out state intervention. The new, tougher balance sheet requirements must be met within one year, or two years for banks undergoing mergers.
Many analysts doubt, however, that the new rules will be enough, warning that the real bad loan figures may be far worse because banks are reluctant to fully realise the declining value of their loans.
As banks stagger under the bad loans, businesses widely report that new credit is hard to come by. Spain's banks turned in huge numbers to the European Central Bank, which has offered more than €`1 trillion in cheap three-year loans to euro zone banks.
Borrowing by Spanish banks from the ECB hit a new record in March at €227.6 billion, up from €152.4 billion in February and €133.2 billion in January. Much of that money, however, has been invested in Spanish government bonds instead of loans to business.
The Bank of Spain estimated that the total value of banks' problematic loans, the value of which is uncertain, amounted to €176 billion in June 2011, the latest date for which those figures are available.
