Moody’s hit 28 Spanish banks with new credit downgrades, as Madrid formally requested a rescue loan of up to €100 billion ($125 billion) for the banking sector from its Euro Zone partners.

The rating agency said the banks face rising losses from commercial real estate loans and that Madrid’s own lowered credit grade also contributed to the rating cuts.

Madrid’s lower creditworthiness “not only affects the government’s ability to support the banks, but also weighs on banks’ stand-alone credit profiles,” Moody’s said.

The downgrades, which ran from one to four notches, came on the same day Spain formally requested the emergency funds from the Euro Zone to strengthen its banks, hit by a crash in the country’s real estate sector.

Support measures

Moody’s said, however, that it “views positively the broad-based support measures being introduced by the Spanish Government to support the Spanish banking system as a whole’’.

“Moody’s 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.”

Rating downgrade

The leading bank, Banco Santander, fell two notches from A3 to Baa2 — “medium grade” — while the second bank, BBVA, lost three levels from A3 to Baa3.

On June 13 Moody’s cut the government’s rating to Baa3, the lowest level of “investment grade” or just above “speculative” or “junk” grade, after the government agreed the deal in principle to borrow money for the banks.

The loans may not go directly to the banks but be added to Madrid’s already heavy debt burden, with the rating agency projecting the country’s public debt ratio to hit 90 per cent of GDP this year and to continue rising through 2015.

(This article was published on June 26, 2012)
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