BdE released data on doubtful loans for August today. The total was €178.58bn compared to €173.24bn in July (+€5.34bn), following an increase of €4.87bn in the previous month. If one fits exponential trends for the total of 2011 and for the March – August 2012 period, the calculated rates of increase are 2.14% for 2011 and 3.98% for 2012 with roughly the same R² of around 0.97. In other words, so far 2012 has seen a doubling of the rate of increase. Based on the trendline, doubtful loans will be around €210bn by the end of the year, increasing by another €30bn by then.

Data on equity and impairment allowances was also released. Net profits are still highly negative (-€10.7bn) while impairment allowances increased by €4.24bn to €106.77bn. The banks stress test used a figure of €110bn, which seems to be only a month away.

Overall, the data point to a deep recession (especially if effective flows on loans are taken into account) which makes recapitalizaton urgent. Based on the projected end-2012 figure of €210bn in doubtful loans and €110bn in impairment allowances, capital needs for 2012 are close to €100bn, especially since banks do not appear to be producing any profits. This will probably mean a combined use of a ‘bad bank’, burden sharing by subordinated and hybrid debt holders and a large part of the €100bn EFSF loan. So far, the projected €60bn capital needs seem optimistic as long as banks do not produce profits and are able to dispose of assets without further losses.

On a related macro note, the Spanish Treasury has made August debt data available. Total average interest rate is now 4.12% (compared with 4.02% in March) while total central government debt is €608.2bn, producing an annual interest of roughly €25bn, or around 2.4% of GDP, without counting debts of other branches of the government. Just for comparison, on January 2011 the corresponding figures were 3.74% and €548.6bn making the annual interest equal to €20.5bn, an increase of 0.5% of GDP.

What is really negative is the data on the government debt market turnover. Although the T-Bills market has held steady, government bond market turnover outright transactions have dropped to almost half compared to the first months of 2012 (when the LTRO effect was strong), while repo turnover went from €39bn in February to €26bn during the summer. It will be interesting to see the market September figures.

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