Chemistry Board

Bad loans at Spanish banks rose to a record high in August, driven by an increasing number of recession-hit Spaniards defaulting on their debt payments.

Loans that fell into arrears in August increased by 5.3 billion euros ($7 billion) from July, reaching 178 billion euros, Bank of Spain data showed on Thursday.

Non-performing loans on the books of the country's crippled banks have risen steadily since a decade-long property boom ended four years ago. Spain's lenders are preparing to receive the first funds from a 100-billion-euro ($131.21 billion) credit line agreed with the European Union in June which is seen paving the way to a full sovereign bailout.

Spain is setting up a bad bank to siphon rotten property assets off lenders' balance sheets to recapitalise banks and free credit flow to families and businesses in an effort to alleviate a recession made worse by Europe-imposed spending cuts.

The country has opened the door to the possibility of including defunct consumer loans in the bad bank, although Economy Ministry sources said on Wednesday this would only be in the worst cases.

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