Moody's has cut its credit ratings for 28 Spanish banks. The move came just hours after Madrid formally asked the European Union for a rescue loan of up to 100 billion euros for its troubled banking sector.
Moody's Investor Service said on Monday that the weakening financial condition of Spain's government had contributed to the downgrade of 28 of 33 Spanish banks by one to four notches.
The ratings agency said the banks face rising losses from Spain's busted real estate bubble. It also cited a cut to Spain's sovereign rating to just above junk status earlier this month.
In a statement it said Madrid's lower creditworthiness "not only affects the government's ability to support the banks, but also weighs on banks' stand-alone credit profiles."
The leading bank, Banco Santander, fell two notches from A3 to Baa2, classed as a "medium grade." Meanwhile the second bank, Banco Bilbao Vizcaya Agentaria, dropped three levels from A3 to Baa3.
Credit downgrades are a measure of the ratings agency's view of the ability of banks to repay their debts. They usually result in banks having to pay more for their debt as investors demand higher interest for riskier debt.
Emergency loan request
The downgrade came shortly after Spain's government formally requested emergency funds from the eurozone to strengthen its banks. The rescue deal worth up to 100 billion euros ($125 billion) had already been agreed on June 9.
Referencing the rescue loan request, Moody's said it endorsed the broad measures being introduced by Spain to support its banks.
"Moody's will assess the impact of the upcoming recapitalization on banks' creditworthiness and bondholders once the final amount, timing and form of funds flowing to each individual bank are known," it added.
Five countries have now formally turned to Brussels for emergency funding. Cyprus joined Greece, Ireland, Portugal and Spain on Monday in seeking EU rescue funds.
ccp/pfd (AFP, AP, Reuters)