MADRID, Feb 18: The burden of bad loans held by Spanish banks eased for the first time in 17 months in December as a “bad bank” began to mop up risky assets, the Bank of Spain said on Monday.

The ratio of doubtful loans, mostly mortgages, extended by Spanish banks fell to 10.44 per cent of total credits from a record 11.38 per cent the previous month, the central bank said.

The decline in bad loans to 166.45 billion euros, the lowest level since May last year, broke a string of 17 straight months of rising bad-loan ratios in the Spanish financial system.

Spain is shoring up its banks after they were hammered by a property market crash in 2008. As one of the conditions imposed in return for the European credit, Madrid agreed to create a bad bank, Sareb, to absorb impaired assets from troubled banks and sell them to investors.

Four of the hardest hit banks that were taken over by the state last year — Bankia, Catalunya Caixa, NovaCaixaGalicia and Banco de Valencia — transferred their bad assets to Sareb on December 31 last year.

“As expected, the transfer of asset to Sareb including doubtful loans related to the property sector has led to a significant decline in the total level of doubtful loans on the overall balance sheets of credit entities in December,” the central bank said in a report. —AFP