As Spain’s recession undermines efforts to cut the deficit, the risk of bank losses is keeping 10-year yields at almost 6 percent as investors speculate the government will be forced to bail out the financial system.
The nation’s 10-year borrowing costs have climbed about 70 basis points this year as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy. Banks threaten to disrupt the premier’s efforts as bad loans reach the highest levels in almost two decades.
For Spanish banks, non-performing loans as a proportion of total lending jumped to 8.16 percent in February, the highest level since 1994, from less than 1 percent in 2007, according to Bank of Spain data published April 18.
Spanish banks may pool property in jointly owned companies under a proposal designed to get assets off lenders’ books, an official at the Economy Ministry said April 23.