Spanish banks hit by wave of downgrades

Fitch Ratings on Monday lowered the credit rating of Spain's four largest banks, including Santander, in a move that follows the agency's two-notch downgrade of Spain last month.

The agency cut its rating for Santander, the biggest eurozone bank by market capitalisation, by two notches to A and cut its ratings for BBVA, Bankia and CaixaBank by one notch, it said in a statement.

Standard & Poor's also took the knife to Spain's finance sector, lowering the credit rating of 15 Spanish banks in a move that follows the agency's downgrade of Spain on January 13.

S&P lowered its credit ratings on 10 banks by one notch and it cut its rating on another five by two notches

Spain's biggest financial institutions were hit including Santander, BBVA, Bankia and CaixaBank, the ratings agency said in a statement.

The agency lowered its rating for Santander, the biggest eurozone bank by market capitalisation, to A+ from AA- and lowered its rating for BBVA, Spain's second-largest bank, to A from A+.

Earlier on Monday, Fitch Ratings lowered the credit rating of Spain's four largest banks -- Santander, BBVA, Bankia and Caixabank -- following its downgrade of Spain last month.

"The downgrade of Spain indicates a weakening of its ability to support its largest banks. However, Fitch expects the Spanish authorities to continue to show a high propensity to support these institutions," it said.

"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.

"Banks tend to own large portfolios of domestic sovereign debt and are highly exposed to domestic counterparties, meaning profitability and asset quality are vulnerable to adverse macroeconomic and market trends.

"Funding access, stability and cost for domestic banks are also often closely linked to broad perceptions of sovereign risk," the agency added.

Last month Fitch downgraded the debt of Spain and four other eurozone countries due to the deteriorating economic outlook in Europe and concerns that European leaders are not acting boldly enough to prevent the debt crisis from worsening.

"Fitch expects no GDP growth for Spain in 2012 and 1.0 per cent growth 2013, for unemployment to remain high at around 23 per cent and for the real estate market to remain a long-term cause for concern," the agency said Monday.

Spain's banking sector is weighed down by a mountain of soured loans and property assets that are losing their value after the bursting of the property bubble, which coincided with the start of a global downturn in 2008.

According to the Bank of Spain, the sector had 176 billion euros ($US232 billion) in problem loans and seized real estate in June 2011 -- a figure which has probably increased since, as the economy has weakened.

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

Earlier this month the government launched a major clean-up of the country's troubled banks, approving a law that obliges them to set up a financial safety net totalling 50 billion euros.

Under the reform the level of provisions must increase to 80 per cent of the total value of assets for some troubled banks and a general provision requirement of 7.0 per cent will be imposed on others.

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