S&P downgrades credit rating on 11 Spanish banks

PanARMENIAN.Net - The Spanish banking sector suffered a widespread downgrade from Standard & Poor's Monday, April 30, after the rating agency's decision last week to lower Spain's sovereign debt rating by two notches, The Wall Street Journal reports.

S&P Monday downgraded its credit rating on 11 Spanish banks, part of a warning that 16 in total still face lower ratings.

Banco Santander SA (STD), Europe's second-largest bank by market value, was dropped to A-, one notch above the rating of Spain's sovereign debt.

Banco Bilbao Vizcaya Argentaria SA (BBVA), the second-largest bank in Spain, was lowered to BBB+, matching the rating for Spain's sovereign bonds. The outlook for both banks is negative, S&P said.

Banco Sabadell (SAB.MC), Spain's sixth-largest bank by market capitalization, was lowered to junk by the rating agency. The bank last week reported a 5% drop in net profit after earmarking EUR293.4 million in provisions to cover loan losses.

The decision last week by S&P to lower Spain's sovereign credit rating was partly the result of the woes of the country's lenders. The rating agency said the government would likely have to provide more aid to Spanish banks, which have struggled as a result of losses linked to their investments in the real-estate sector.

The government has forced the banks to hike their provisions to cover losses stemming from plummeting real-estate prices.

S&P cited direct negative implications from the sovereign downgrade for those banks whose ratings are boosted by the availability of government support.

While the losses linked to the banking sector's real-estate holdings continue to pile up, the rating agency warned that an economic slowdown in Spain this year could further hobble the country's lenders.

The Spanish economy contracted 0.3% in the first quarter of the year from the previous period, data released Monday showed.

Standard & Poor's warned in its sovereign-credit rating downgrade that Spain faced "a challenging fiscal outlook" amid growing worries on the ability of the country's regions to curb spending.