Tuesday, September 18, 2012

With deposits running out the door, Spanish bad loans climb to almost 10%

According to a Guardian article,

Spanish bad bank loans climbed to a fresh high in July, with almost 10pc of households and companies now behind on their payments. 
Bad debts climbed to 9.86pc of total lending, the according to Bank of Spain data, the highest since records began in 1962. 
The data showed that €169.3bn of loans were more than three months past their repayment deadlines. June's bad loan rate was also revised up, to 9.65pc.
This increase in bad loans is no surprise to regular readers as your humble blogger has been saying for months that the level of bad loans was inconsistent with a 25% unemployment rate and a shrinking economy.

The real question is "what is the true state of the Spanish bank balance sheets".

Without ultra transparency under which the banks disclose all of their current global asset, liability and off-balance sheet exposure details, how are market participants suppose to know the true extent of the banks' exposure to losses?

The answer is that they cannot.

Bringing in a consultant does not provide confidence in the bad loan level.

Without ultra transparency, there is no reason to 'trust' the consultant's statement on the level of bad loans as the statement cannot be independently confirmed.

Without the ability to independently confirm, market participants have to ask themselves 'why is the government hiding the exposure level data'?

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