Standard & Poor’s said its view of Spanish banks has become more negative and it expects credit risk to rise.
“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 company said in a statement today.
Spain’s efforts to win back market confidence by increasing taxes and cutting benefits have failed to reduce borrowing costs while sending the economy deeper into recession. Unemployment at a record high of 26 percent prompted a surge in bad loans to 10.7 percent of the total and tipped companies that depend on domestic demand for sales into losses.
“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,” S&P said. “Banks are now more exposed to the weaker public sector.”
S&P rates Spain BBB-, one step above junk, after cutting the rating six times since 2009, when it stripped the country of its AAA grade. Spanish banks hold 192 billion euros ($248 billion) of Spanish debt, or about 32 percent of the outstanding total, compared with 94 billion euros at the end of last year, data from the Treasury show.
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