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Spanish bank bad loans surge to record high

AFP · 18 Nov 2013, 17:10

Published: 18 Nov 2013 17:10 GMT+01:00

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Risky loans, mostly linked to the collapsed property sector, climbed by 6.9 billion euros from the previous month to an unprecedented €187.8 billion ($254 billion) in September, a Bank of Spain report showed.

The bad loans rose to 12.68 percent of all credit extended by banks in Spain in September from 12.14 percent in August, representing a fourth consecutive record high.

Last year, the eurozone agreed to extend a rescue loan of up to €100 billion to shore up the balance sheets of Spain's banks, swamped in bad loans since a property bubble imploded in 2008 plunging the country into a recession.

Spain, the eurozone's fourth-largest economy, has drawn €41.3 billion from the rescue loan.

Despite the persistently high level of bad loans, Prime Minister Mariano Rajoy's government last week said it would exit the eurozone-funded banking bailout in January.

Economy Minister Luis de Guindos said in Brussels that Spain would not request fallback assistance from the European Stability Mechanism, a rescue fund set up to provide a safety net for heavily-indebted governments.

While applauding Spain's decision for the signal sent to markets, eurozone finance ministers called on Madrid to push forward with reforms to address the country's economic challenges, budget shortfalls, high debt, and mass unemployment.

European Union chiefs said Spain's draft 2014 spending plans placed it "at risk of non-compliance" with its deficit-cutting targets. Spain has agreed to respect EU-norms by reducing the deficit to less than three percent of total economic output by 2016.

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Spain suffered a double-dip recession after the 2008 property collapse, emerging gingerly from the last downturn with 0.1-percent economic growth in the third quarter.

Economists warn of threats to its economic recovery, however, and say that the unemployment rate -- running at 26 percent in the third quarter of 2013 -- will remain painfully high for years to come.

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