(The following statement was released by the rating agency)
Nov 23 -
-- Economic risks for the Spanish banking sector have risen, in our view, in the context of the rapid deterioration in the creditworthiness of the sovereign (which has been reflected in our rating actions on Spain, including our recent two-notch downgrade).
-- In our view, Spanish banks are facing higher credit risks as Spain's weakening economy, public sector cuts, austerity measures, and high unemployment will likely hamper the creditworthiness and resilience of public and private sector borrowers.
-- The Spanish financial system is a major beneficiary of support from the European Central Bank, aimed at giving time for institutions to rebalance their funding profiles. Reliance on this support has varied from bank to bank and we are therefore reflecting this more explicitly by lowering our stand-alone credit profiles on some banks and recognizing in our ratings the benefits of the support provided.
-- As a result, we are lowering our long- and short-term ratings on Confederacion Espanola de Cajas de Ahorros and Ibercaja Banco S.A. and our long-term rating on Bankinter S.A. We are affirming our ratings on the remaining 12 Spanish banks. The outlook on all our ratings on Spanish banks is negative, except those on Bankia S.A. and Banco Financiero y de Ahorros S.A. which remain on CreditWatch with negative implications.
-- We are lowering our stand-alone credit profiles on seven banks: Confederacion Espanola de Cajas de Ahorros, Ibercaja Banco S.A., Bankinter S.A., CaixaBank S.A., Banco Popular Espanol S.A., Banco de Sabadell S.A. , and Barclays Bank S.A.
-- We are incorporating short-term funding support in our ratings on four banks (Bankia S.A., Banco Popular Espanol S.A., Banco de Sabadell S.A. and Bankinter S.A), thus uplifting their ratings above their stand-alone credit profiles. Bankia's ratings also benefit from short-term capital support.
-- The lowering of the SACPs has had negative implications for the nondeferrable subordinated and hybrid debt ratings of Banco de Sabadell S.A., Banco Popular Espanol S.A., Ibercaja Banco S.A., and Bankinter S.A.
Standard & Poor's Ratings Services today said it has lowered its long- and short-term counterparty credit ratings on Confederacion Espanola de Cajas de Ahorros (CECA) and on Ibercaja Banco S.A. (iberCaja) to 'BB+/B' from 'BBB-/A-3' and its long-term rating on Bankinter S.A. (Bankinter) to 'BB' from 'BB+'. We affirmed our 'B' short-term rating on Bankinter. The outlook on the ratings on these banks is negative. All ratings were removed from CreditWatch negative, except the short-term rating on Bankinter, which was not on CreditWatch.
After lowering the ratings on CECA, we have withdrawn them at the issuer's request. Subsequently we assigned our 'BB+/B' counterparty credit ratings to CECABANK S.A. (Cecabank), a newly created commercial bank following the transfer by CECA to Cecabank of most of CECA's assets and liabilities. The outlook is negative.
We are keeping on CreditWatch with negative implications our 'BB' long--term rating on Bankia S.A.and our 'B/B' long- and short-term ratings on its parent holding company, Banco Financiero y de Ahorros S.A. (BFA), ahead of the announcement of full details on the content of the banks' recapitalization and restructuring plans, expected to be finally approved by the end of the month.
We affirmed our ratings on the remaining Spanish banks that we rate and, when appropriate, removed them from CreditWatch with negative implications. The outlook on the ratings on these banks is negative. See below for a comprehensive list of rating actions.
We lowered the nondeferrable subordinated debt and hybrid instruments ratings of Banco Popular Espanol S.A. (Popular) and Bankinter S.A. by one notch and those of Banco de Sabadell S.A. (Sabadell) and Ibercaja Banco S.A. (iberCaja) by two notches. These actions are driven by the lowering of the banks' SACPs (see individual banks' research updates for further details).
We now have a more negative view of the economic risks that Spanish banks are facing, and we expect credit risks to rise. The rapidly deteriorating creditworthiness of the Spanish sovereign, as evidenced by multiple downgrades over the last 12 months, is a leading indicator of greater credit risk in lending to households, corporations, and the public sector. Banks are now more exposed to the weaker public sector, while austerity measures, high unemployment, and poor economic growth prospects makes lending in Spain to all sectors more risky.
In our view, the deteriorating condition of the sovereign will weigh heavily on the economic and operating environment in Spain, which in turn will reduce the resilience of both the corporate and household sectors in the medium-term. Further, this could counterbalance the positive effects of the deleveraging trend currently underway in the private sector.
Reflecting the higher economic risks faced by the Spanish banking industry, we have revised down our anchor (the starting point for our ratings) for financial institutions operating primarily in Spain to 'bb+' from 'bbb-'. This excludes Banco Santander S.A. (Santander) and Banco Bilbao Vizcaya Argentaria S.A. (BBVA), which we view as less exposed to developments in their home market due to their wider geographic diversification, and so we are maintaining their anchor at 'bbb-'.
Our expectation of higher economic risks ahead for banks has also led us to revise downward our capital and earnings assessments on six banks: CaixaBank S.A. (Caixabank), Sabadell, iberCaja, Bankinter, Barclays Bank S.A. (BBSA), and Bankia. For Bankia, we also took into account the effects on capital of the sizeable losses reported at end 2011 and June 2012. At present, our capital and earnings assessments for all Spanish banks range from very weak to moderate, with the exception of CECA. For CECA, we consider the bank will be able to sustain its current adequate capital position over the foreseeable future. The weaker capital assessments have had a negative impact on the stand-alone credit profiles (SACPs) of all of the above mentioned banks, except Bankia.
Despite lowering several SACPs, we have only lowered our ratings on three institutions, CECA, iberCaja, and Bankinter, as the impact of lower SACPs for these three institutions is not offset by any benefit from receiving government or parental support.
In the case of Popular, our assessment of capital has remained weak despite increased economic risks due to its EUR2.5 billion capital increase underway. As the bank is expected to reinforce its capital by its own means, rather than resorting to state aid, we removed short-term capital support from its ratings. At the same time, and given its high systemic importance for the Spanish banking system, we are giving a one-notch ratings uplift to reflect our expectation that the bank could receive extraordinary government support in a crisis.
We have also performed a review of the funding and liquidity scores we assign to Spanish banks, to identify those institutions that have been more reliant on funding support from the government and the central bank following the approach communicated in February 2012 (see 'ECB's Funding 'Bazooka' Gives Eurozone Banks Time To Reshape Their Business Models And Balance Sheets,' published Feb. 29) and as we announced in early August 2012 (see 'CreditWatch Actions On Four Spanish Banks On Potential Implications Of State Recapitalization,' published Aug. 7).
As a result of this review, we have revised down our funding assessment on four banks to below average from average. These banks are Sabadell, Popular, Bankinter, and Bankia. We see the funding profiles of these four banks as weaker than those of domestic peers in light of their comparatively higher reliance on wholesale funding at a time when markets are virtually closed and due to their higher reliance on systemic funding sources, primarily ECB borrowings.
The weakening of our funding assessments on these banks underscores the pressure on their SACPs (except in the case of Bankia, whose SACP is already at a very weak 'ccc+'). That said, because we consider that ECB funding will give these banks time to rebalance their funding profiles to a level on par with domestic peers over the medium term, we are incorporating short-term support in our funding assessments for the first time. This offsets the negative impact of our views of these banks' current funding imbalances on their ratings.
We have improved our funding assessments to above average for two banks: Caixabank and Kutxabank S.A. (Kutxa). This reflects our view that these banks have a better balanced funding structure and significantly lower reliance on ECB funding than the average of the system. The change in our assessment of the funding position has, however, a neutral impact on our SACPs and ratings on these institutions as we typically only provide an uplift in the SACP of banks that combine 'above-average' funding and 'strong' liquidity, whereas we continue to see Caixabank and Kutxa's liquidity as 'adequate'.
As part of this review, we have maintained our liquidity assessments at 'adequate' on all our Spanish rated banks, except Bankia. We have lowered our liquidity assessment for Bankia to 'weak' to reflect the bank's meaningful increase in short-term ECB borrowings during the first half of 2012, which we believe will take some time to unwind, and our view on its limited liquidity cushions. Having already pledged as collateral a sizeable amount of assets, we believe that the bank's liquidity cushions are limited. In our view, however, the upcoming transfer of risky assets of Bankia to an external asset management company and the capital increase will provide some relief to Bankia's stretched liquidity (by strengthening its portfolio of assets eligible for discount), and we are thus recognizing this benefit in the short-term funding support uplift over its SACP that we incorporate in Bankia's ratings.
Following the review of both the implications of the higher economic risks ahead on banks' business and financial profiles and the banks' funding and liquidity assessments, the majority of our ratings and SACP assessments on Spanish banks are in the noninvestment grade category.
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