Spain Lending Shrinks at Record Pace as Defaults Rise

Spanish banks reduced lending at a record pace and defaults mounted as the country’s recession and rising unemployment took a toll on their ability to make loans to solvent borrowers. Lending fell by 3.3 percent in December from a year before, the biggest drop since Bank of Spain records started half a century ago, the regulator said on its website today. Bad loans as a proportion of total loans rose to 7.61 percent from 7.52 percent in November as borrowing considered “doubtful” jumped to 136 billion euros ($179 billion) from about 11 billion euros five years ago, before Spain’s property crash. The prospect of a protracted recession in Spain is curbing the appetite for loans and making banks more cautious about lending. The economy may shrink 1.5 percent this year, according to central bank forecasts, while unemployment stands at 23 percent. Exane BNP Paribas predicts an economic contraction could stretch through 2013. “You have a credit crunch in Spain,” said Gilles Moec, co-chief European economist at Deutsche Bank AG in London. “It’s another reason for recession this year.”