The fragility of Spain's banking system became painfully clear this week after it emerged that the Spanish government may be forced to bail out the country's third largest lender, Bankia. And that could also mean bad news for investors in Spain's largest bank - Banco Santander.
In particular, the collapse of the Spanish property market - a key problem behind Bankia's woes - is also hurting Santander. In first quarter figures late last month, for example, Santander reported that a huge 32.8 per cent of its Spanish property-related book was now impaired - compared to 17 per cent in December 2010. The bank's quarterly bad debt provision soared 51 per cent on the same quarter in 2011, too, and a chunky 5.7 per cent of the bank's total Spanish loan book is now in trouble.
