Madrid, Feb 19 (IANS): The bad loan ratio of Spanish banks fell to 10.44 percent in December 2012 for the first time after 17 consecutive months of increases, according to data published by the Bank of Spain.

Spain's banking system arrears dropped by 0.94 percent on a monthly basis, from the record high of 11.4 percent reached in November 2012 to the 10.44 percent of the last month of the year, reported Xinhua.

This decrease is attributed to the Spanish bad bank (Sareb), which was created to separate toxic loans from healthy ones in the Spanish banking sector being a condition for receiving the financial assistance from the European Union (EU).

The "bad bank" took toxic assets from the nationalized financial entities last December, cleaning doubtful debts mainly from the real estate sector within Spain's banks Banco de Valencia, Novagalicia Banco, Catalunya Banc and Bankia.

As a result of the transfer, the Spanish banking sector saw a decrease in troubled loans in December, meaning the lowest rate since July 2012 and the first time it dipped since March 2011.

The Bank of Spain pointed out that this "drop in loan balances" did not imply a "drop in the flow of credit to families and Spanish companies".

Bad loans fell to 167.447 billion euros in December (about $223.7 billion) in the whole Spanish banking sector, 24.183 billion euros less than in November and the lowest level since May 2012.