Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, Spain’s biggest banks, were cut three levels by Moody’s Investors Service, which cited a recession and mounting loan losses in downgrading 16 of the nation’s lenders.
Moody’s cut nine banks by three notches and kept seven on review for further reductions, the ratings firm said Thursday in a statement. Santander’s U.K.-based subsidiary also was cut.
The reductions followed Moody’s downgrade of 26 Italian banks on Monday and its Feb. 13 cut of Spain’s sovereign debt. The main drivers for the Spanish bank downgrades are a surge in soured loans, the recession, restricted funding access and the reduced ability of the government to support lenders as its own creditworthiness diminishes, Moody’s said.
“Banks will continue to face highly adverse operating and market funding conditions that pose a threat to their creditworthiness,” the ratings firm said. “The Spanish economy has fallen back into recession in first-quarter 2012, and Moody’s does not expect conditions to improve” this year.
Santander and BBVA both were cut to A3, the same as the Spanish government, from Aa3, according to Moody’s. Spokesmen for both banks didn’t immediately return phone messages seeking comment on the downgrades.
Doubts about the health of Spain’s banking system have helped drive up the country’s borrowing costs on concern it will struggle to cover losses caused by a real estate collapse that threatens to force some lenders to seek state aid. The yield on 10-year Spanish government debt climbed 2 basis points to 6.31 percent Thursday as the spread over German bunds widened to 490 basis points from 482 basis points yesterday.
A four-year property slump has driven up loan defaults and heightened investor suspicions that firms’ balance sheets don’t fully reflect the scale of potential losses. The nation’s lenders carry 184 billion euros ($234 billion) of what the Bank of Spain terms “problematic” real estate-linked assets and the ratio of bad loans to total lending surged to 8.16 percent in February compared with less than 1 percent in 2007.
The government, in its latest attempt to bolster confidence in banks, said on May 11 it would require lenders to set aside about 30 billion euros to cover potential losses on real estate loans that are still performing.
That’s on top of 53.8 billion euros of charges and capital ordered in February. Economy Minister Luis de Guindos also said the government would hire two auditors to value lenders’ assets.
The government on May 9 took over the Bankia group, the lender with the biggest Spanish asset base after it filed 2011 earnings without certification from auditors. Deputy Economy Minister Fernando Jimenez Latorre Thursday denied deposits were leaking from Bankia after El Mundo newspaper reported that 1 billion euros had been withdrawn by customers since May 9. Bankia’s newly appointed chairman, Jose Ignacio Goirigolzarri, said that the bank’s activity had been “basically normal” in recent days.
Moody’s on Feb. 13 cut the debt ratings of Spain and five other countries including Italy and Portugal, citing Europe’s debt crisis. On April 30, Standard & Poor’s cut its credit ratings for 11 Spanish banks, including Santander and BBVA.
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