Moody’s Investors Service has downgraded the credit ratings of 16 Spanish banks, citing country's ongoing recession and the reduced creditworthiness of the Spanish government.
The ratings agency on Thursday lowered the debt ratings of the banks, including the country’s two largest banks -- Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA) -- by one to three notches.
"Amidst the ongoing euro area debt crisis, the Spanish government's rising budget deficit, and the renewed recession, sovereign creditworthiness has declined," the agency said in a statement.
The long-term debt ratings of both Santander SA, the eurozone's largest bank, and BBVA, Spain's second-largest lender, were each lowered by three notches to A3.
Apart from the 16 banks, the firm also cut the rating for Santander UK PLC, a UK-based subsidiary of Banco Santander SA, by one notch to A2.
“Banks will continue to face highly adverse operating and market funding conditions that pose a threat to their creditworthiness,” the firm said. “The Spanish economy has fallen back into recession in first-quarter 2012, and Moody’s does not expect conditions to improve” this year, it noted.
Recently released figures by the National Statistics Institute show that Spain’s economy has slipped 0.3 percent in the first quarter of 2012, indicating that the country has entered recession for a second time after the global economic downturn in 2008.
On April 30, Moody’s rival ratings agency Standard & Poor's cut its credit ratings for 11 Spanish banks, including Santander and BBVA.
Moody's downgrading of the banks comes hours after the agency cut the ratings of four of Spain's regions -- Catalonia, Murcia, Andalucia, and Extremadura -- "due to their poor fiscal performance in 2011 and the low probability that the regional governments will be able to meet the 2012 deficit target.”
The developments come as the country is struggling to contain a record high 24.4 percent unemployment rate.