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Spanish banks cut by S&P and Fitch

Wednesday 12 October 2011 - by Will Henley


Spain's banks were downgraded by both Standard & Poor's and Fitch credit rating agencies on Tuesday night, in a fresh blow to the stability of Europe's financial sector.

Fitch on Tuesday cut the ratings of six banks following its downgrade of Spanish sovereign debt to from 'AA+' to 'AA-' with a negative outlook last week.

S&P meanwhile also took negative rating actions on 15 banks, and lowered by one notch the long-term counterparty credit ratings on 10 institutions.

Spain's largest banks, Banco Santander and Banco Bilbao Vizcaya Argentaria were among those affected.

Ominously, S&P added that it no longer sees 2012 as the year when the Spanish banking sector will be able to turn around its fortunes.


"We now expect that the correction of imbalances in Spain will continue to adversely affect banks' financial profiles in the next 15-18 months, potentially continuing into early 2013," it said.

Fitch said that its downgrades reflected its view that banks around the world, especially those in the EU, continue to face "material market and fundamental challenges".

A deterioration in the funding conditions for the government has contaminated funding access and costs for the banks, it said. It added that these pressures may take time to die down.

"The weak economic environment in Spain, high unemployment and the property sector's problems will continue to affect the volume of activities in banks domestically, as well as asset quality, having an impact on performance indicators," it said.

"A deleveraging process is being accelerated by difficult wholesale market access for funding, higher funding costs and lower demand for loans."



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