Moody’s Investors Service says that it has downgraded by one to four notches the long-term debt and deposit ratings for 28 Spanish banks and two issuer ratings.
The ratings agency says that the actions follow the weakening of the Spanish government’s creditworthiness, as captured by Moody’s downgrade of Spain’s government bond ratings to Baa3 from A3 on 13 June, and the initiation of a review for further downgrade.
Moody’s adds that the downgrades of the long-term debt and deposit ratings also reflect the lowering of most of these banks’ standalone credit assessments. The debt and deposit ratings declined by one notch for three banks, by two notches for 11 banks, by three notches for 10 banks and by four notches for six banks. The short-term ratings for 19 banks have also been downgraded between one and two notches, triggered by the long-term ratings changes.
The agency adds that its actions reflect, to various degrees across these banks, two main drivers:
• Moody’s assessment of the reduced creditworthiness of the Spanish sovereign, which not only affects the government’s ability to support the banks, but also weighs on banks’ standalone credit profiles.
• The ratings agency’s expectation that the banks’ exposures to commercial real estate (CRE) will likely cause higher losses, which might increase the likelihood that these banks will require external support.
Moody’s adds that this notwithstanding, it views positively the broad based support measures being introduced by the Spanish government to support the country’s banking system as a whole. It will assess the impact of the upcoming recapitalisation on banks’ creditworthiness and bondholders once the final amount, timing and form of funds flowing to each individual bank are known.
The ratings of both Banco Santander and Santander Consumer Finance are one notch higher than the sovereign’s rating, due to the 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, including under stress scenarios. All the rest of the affected banks’ standalone ratings are now at or below Spain’s Baa3 rating.
In addition, Moody’s says that it has also downgraded:
• The ratings for senior subordinated debt and hybrid instruments of affected entities.
• All rated government-backed debt issuances from Spanish banks.
• The long-term debt ratings of Instituto de Credito Oficial (ICO), which are based on an unconditional and irrevocable guarantee from the Spanish government.
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