ECB loans to Spanish banks hit record high in January

European Central Bank loans to Spain’s struggling banks hit to a record high 133.18 billion euros ($175 billion) in January, the Bank of Spain said Tuesday.

The figure, which shows Spanish banks are turning to the ECB rather than raise funds on the financial markets, was a “record high” since the data were first published in 1999, a Bank of Spain spokeswoman said.

Borrowings have been inflated by the ECB’s decision last December to extend nearly half a trillion euros in cheap, three-year loans to cash-strapped eurozone banks.

The January borrowing by Spain’s banks beat a previous record in July 2010 of 131.89 billion euros.

ECB loans to Spain’s banks had been declining until last September when they swung sharply higher.

Spain’s banking sector has been weighed down by a mountain of bad loans and swathes of stricken real estate assets seized from borrowers since the 2008 property bubble collapse.

Fitch Ratings and Standard & Poor’s on Monday lowered their credit rating of Spanish banks, including the country’s four largest lenders.

“The downgrade of Spain indicates a weakening of its ability to support its largest banks,” Fitch said in a statement.

“Fitch believes there is a close link between bank and sovereign credit risk (and therefore ratings) and, it is unusual for banks to be rated above their domestic sovereigns.”

According to the Bank of Spain, the sector had 176 billion euros ($232 billion) in problem loans and seized real estate in June 2011 — a figure which has probably increased since as the economy has weakened.

The banking sector has undergone a major restructuring since 2008 but Spain’s new conservative government considers it still to be at risk.

This month the government launched a major clean-up of the banks, approving a law that obliges them to set up a financial safety cushion amounting to 50 billion euros.