Bank Defaults Up Sharply In Q2

Both Banco Popular Espanol and Banco Sabadell reported their second-quarter earnings today that, and both provided evidence of a rise in defaults as the economic collapse which is steadily working its way across Spain hits the ability of borrowers to repay loans.

Popular, Spain's third-biggest bank, said defaults as a percentage of total lending doubled to 1.4 percent from 0.72 percent a year ago as bad loans on the Madrid-based company's books jumped to 1.47 billion euros ($2.3 billion) from 686.3 million euros a year ago.

Sabadell, Spain's fourth-biggest bank, reported a default ratio of 0.85 percent compared with 0.39 percent a year ago as loans in default on its books surged to 662.8 million euros from 270.8 million euros a year ago. Newly defaulted loans climbed 208 percent to 457 million euros from 148.3 million euros a year ago.

Bankinter SA, Spain's fifth-largest bank, said its loan default ratio rose to 0.67 percent from 0.28 percent a year ago as loans in arrears more than doubled to 296.2 million euros from 113.8 million euros a year ago.

Perhaps the most important piece of information we have learnt today is that the ratio of provisions to defaults at Banco Popular has now plunged to 139 percent, down from 185 percent in March and 256 percent a year ago, as new defaults have only increased and increased, rising to 1.15 billion euros from 359.2 million euros a year ago.

Of course, this is only the start, but the rate of deterioration is significant I think.