It said total bad debt held by the banks soared to 107.173 billion euros ($145.17 billion dollars), a ratio to total loans of 5.81 percent, up from 5.68 in November and 5.66 percent in October, the Bank of Spain said.

The rate, which was 4.98 percent in October 2009, is the highest since December 1995, according to calculations by Spanish media.

Spain's lenders, especially its regional savings banks that account for about half of all lending in the country, have been heavily exposed to bad debt since the collapse of the property sector at the end of 2008.

Credit rating agency Moody's in December issued a negative outlook on Spain's banks and warned that total economic losses could reach 176 billion euros.

To allay these concerns the Spanish government is racing to strengthen the regional lenders, considered the weak link in the country's banking system.

Several mergers among the saving banks last year were considered insufficient to convince nervous markets and the government on Friday is expected to approve a measure calling on them come up with fresh capital by September.

The banks are at the heart of market fears that the country could need a bailout from the European Union and the International Monetary Fund like the ones granted Ireland and Greece last year.

All eight major Spanish banks passed European Union bank stress tests conducted in July on their ability to weather a new crisis but five of the regional saving banks failed.

The markets have since cast doubt on the tests, which gave a pass to the now bailed out Allied Irish Banks and Bank of Ireland, with European leaders promising fresh and more stringent testing.