Moody’s was prompted to cut long-term debt and deposit ratings on the banks – by between one and four notches – over concerns of creditworthiness, which has already seen it downgrade Spanish government bond ratings.
Three banks were downgraded by one notch, 11 banks were downgraded two notches, 10 banks by three and six banks by four notches.
The ratings agency claimed its assessment of Spanish sovereign creditworthiness and its ability to support banks was a contributing factor, as was the sector’s exposure to commercial real estate.
Moody’s will assess the impact of recapitalisation on banks’ creditworthiness – which the Spanish government has approached the Eurogroup for support – once final details have been published.
Banco Santander and Santander Consumer Finance are placed one notch higher than the Spanish government’s rating, due to their “high degree of geographical diversification of their balance sheet and income sources, and a manageable level of direct exposure to Spanish sovereign debt relative to their Tier 1 capital”.
Moody’s believes there are difficulties in establishing “credible” valuations within the commercial real estate sector because of restricted liquidity.
Further downward pressure on ratings could come if operating conditions worsen, asset quality deteriorates and pressures on market funding intensify, according to the ratings agency. Upward pressure on ratins would come from implementation of the Spanish government’s plans to stabilise the banking system, stronger earnings, improved funding conditions or by addressing asset quality challenges, reports Moody’s.