Spanish banks cut lending in Q3 as economy worsens

By Paul Day

MADRID, Dec 5 (Reuters) - Spanish banks cut lending to consumers and businesses in the third quarter compared to the second as the economic outlook worsened and fears of nonpayment rose, the Bank of Spain said on Friday.

Of the 10 Spanish banks surveyed, seven noted a decrease in loans offered to consumers and businesses in the third quarter while the other three said the number of loans offered remained unchanged from the second quarter.

The study comes just days after Economy Minister Pedro Solbes urged the financial sector to use funds granted by the government to restart lending to families and companies to stimulate the flagging economy.

Spain, the euro zone's fourth-largest economy, contracted for the first time in 15 years in the third quarter. The country's jobless rate, which is the highest in the European Union, rose to near 3 million people in November.

The government plan to help banks hit by the global credit crisis will buy up to 50 billion euros ($63.45 billion) in financial assets in 2008 and 2009, and guarantee up to 200 billion euros in debt issues.

On Wednesday, Solbes met with the heads of Spain's largest banks and called on them to use the state support to increase lending.

The Bank of Spain study showed consumers had faced stricter lending conditions than businesses.

"The drop (in lending) is mainly due to the economic outlook, risks related to guarantees and, most notably, a perception of a lack of consumer solvency," the central bank said.

Banks saw loan defaults surge by 266 percent in September from the same month last year, to a nonperforming loan ratio of 2.44 percent, though this could rise to 9 percent as unemployment soars, economists have warned.

The study said it expects lending conditions to continue to worsen in the fourth quarter on both the supply and demand side in Spain and in the euro zone. ($1=.7880 Euro) (Reporting by Paul Day; Editing by James Dalgleish)