Spain's central bank Tuesday said bad debt levels in the country's construction and real estate sector are rising slightly, even though non-performance in mortgages and other retail loans is decreasing, a sign that a three-year long property bust is still taking a toll on banks.
In a twice-yearly report, the Bank of Spain said the country's commercial banks must keep cutting operating costs, to offset the effect of narrow interest margins in what it called a "difficult" environment for the sector.
The report comes at the start of the first-quarter earnings season for Spanish banks. Last week, large banks such as Banco Santander SA (SAN.MC) and Banco Sabadell SA (SAB.MC) reported lower profit on higher provisions to reinforce their capital base against continued weakness in construction-related loans, in trouble since Spain's property market crashed in 2008.
Credit for Spanish households–a key to restarting economic expansion in one of the slowest-growing economies in the world–is still contracting, in line with trends seen in past quarters despite some signs of recovery in recent months, the central bank said Tuesday. Prospects for a bounce are limited, the central bank added.