Bad debt at Spanish banks has risen to record levels, with data from the Bank of Spain showing that 9.86 per cent of all the debt they hold is in arrears and may not be repaid. It is the highest bad-loan ratio since central bank records began in 1962.
The announcement will add to the pressure on Spain's Prime Minister Mariano Rajoy to ask for international aid, paving the way for the European Central Bank to buy his government's bonds.
The news that so much Spanish bank debt is in arrears will also prompt questions about whether the previous €100bn (£80bn) bailout of the banking sector, requested in June by Mr Rajoy, will prove sufficient.
The results of a final EU stress test on Spain's banks are due to be published on 28 September, and this will decide which institutions will need bailout cash. Some analysts suggest up to €60bn will be needed almost straight away.
The yield – or interest rates demanded by investors – at Spain's latest debt sale yesterday fell slightly from last month but remained at 2.835 per cent on the 12-month bill and at 3.072 per cent on the 18-month paper, offering little hope the country can finance itself at reasonable levels without seeking assistance. The yield on the benchmark 10-year bond also rose to just over 6 per cent.
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