The collapse in July of Martinsa-Fadesa, a big property developer, has generated the sharpest monthly rise in bad debts at Spanish banks in more than five years, according to figures released yesterday by the Bank of Spain.

Spain’s bad debt problem underlines the severity of the downturn facing even those economies not directly affected by the turmoil among US and UK banks.

Bad and doubtful debts rose by more than €9bn ($13bn) to €40.84bn in July, ratcheting up Spanish banks’ overall bad debt ratio as a proportion of total loans to 2.22 per cent from 1.70 per cent the previous month. The July increase alone exceeded total bad debts during the boom years in the early part of the decade.

Financial Times