Actions follow rating reviews announced on 15 February 2012 and other dates
Madrid, May 17, 2012 -- Moody's Investors Service has today downgraded by one to three notches
the long-term debt and deposit ratings for 16 Spanish banks and
Santander UK PLC, a UK-domiciled subsidiary of Banco Santander
(Spain) SA. The rating downgrades primarily reflect the concurrent
downgrades of most of these banks' standalone credit assessments,
and in five cases also Moody's assessment that the Spanish government's
ability to provide support to the banks has reduced.
The debt and deposit ratings declined by one notch for five banks,
by two notches for three banks and by three notches for nine banks.
The short-term ratings for 13 banks have also been downgraded between
one and two notches, triggered by the long-term ratings changes.
The outlooks on the debt and deposit ratings for ten of the 17 banks downgraded
today are now negative. For the remaining seven banks affected
by today's actions, their ratings remain on review for further
downgrade, for reasons specific to each bank (as discussed separately
Today's actions reflect, to various extents across banks,
four main drivers:
1.) Adverse operating conditions, characterised by the renewed
recession, the ongoing real-estate crisis and persistent
high levels of unemployment.
2.) Reduced creditworthiness of the Spanish sovereign, which
weighs on banks' standalone profiles and affects the ability of
the government to support banks.
3.) Rapid asset-quality deterioration, with non-performing
loans to real-estate companies rising rapidly, and Moody's
expecting other loan categories to deteriorate.
4.) Restricted market funding access, with the ongoing euro
area debt crisis contributing to persistent investor concerns about Spanish
banks and the sovereign.
Moody's recognises several positive trends that have limited the
extent and scope of today's rating actions. These mitigants
include (i) the strengthening risk-absorption capacity of banks,
underpinned by stricter capital and provisioning requirements; (ii)
liquidity support from the European Central Bank (ECB) and (iii) actual
and prospective support from the Spanish government, within the
constraints of the sovereign's own reduced creditworthiness.
However, Moody's believes these positive factors are overwhelmed
by mounting asset-quality challenges that weaken the earnings and
threaten to erode the capital positions of many banks.
Moody's debt and deposit ratings for publicly-rated Spanish
banks now range between A3 and Ba3, with an (unweighted) average
between Baa2 and Baa3. This average is below most Western European
banking systems, reflecting the severe impact of both the difficult
domestic environment and the ongoing euro area debt crisis on Spanish
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_142024
for the list of Affected Credit Ratings. This list is an integral
part of this press release and identifies each affected issuer.
For additional information on bank ratings, please refer to the
webpage containing Moody's related announcements: http://www.moodys.com/bankratings2012.
Moody's has also published today a special comment titled "Key
Drivers of Spanish Bank Rating Actions" (http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_141658)
with more detail on the rationale for today's actions.
AFFECTED BANK RATINGS CARRY NEGATIVE OUTLOOKS OR REMAIN ON REVIEW
The negative rating outlooks for nine Spanish banks affected by today's
actions reflect Moody's expectation that banks will continue to
face highly adverse operating and market funding conditions that pose
a threat to their creditworthiness. In some cases, the outlooks
additionally reflect the negative outlook on Spain's A3 government
bond rating, which incorporates downside risks to the government's
creditworthiness and therefore, to its ability to extend support
to banks. The placement on review for further downgrade of the
ratings for seven banks affected by today's actions reflects drivers
specific to each bank, including in some cases ongoing mergers
RATINGS RATIONALE -- STANDALONE CREDIT STRENGTH
Following today's actions, publicly-rated Spanish banks
fall into four broad groups, based on their standalone creditworthiness:
- The first group consists of the two largest banks, Banco
Santander (Spain) SA (deposits A3, BFSR C / BCA a3) and Banco Bilbao
Vizcaya Argentaria SA (deposits A3, BFSR C / BCA a3). They
retain the highest standalone credit assessments among Spanish banks,
mainly because of the relatively stable earnings generated by their strong,
geographically diversified franchises.
- The second group includes institutions with baa standalone credit
assessments. The banks within this group have generally solid underlying
earnings and franchises relative to Spanish peers, but are more
exposed to the domestic economy and less resilient than the two largest
- The third group comprises institutions with standalone credit
assessments of ba1 and lower, reflecting elevated vulnerability
to the current challenging conditions.
- The fourth group is made up of those banks whose ratings remain
on review and can therefore not be allocated to the above groups.
In addition to the seven banks downgraded today whose ratings remain on
review, the ratings for nine other banks also remain on review.
FIRST DRIVER -- ADVERSE OPERATING CONDITIONS
The Spanish economy has fallen back into recession in first-quarter
2012, and Moody's does not expect conditions to improve during
2012. Moreover, the real-estate crisis that began
in 2008 is ongoing, and unemployment has risen to very high levels,
with rising risks to white-collar employment (in addition to extremely-high
youth unemployment) affecting the outlook for banks' household lending.
As a result, Moody's expects bank asset quality to deteriorate
further in coming quarters, causing persistently high loan-loss
provisioning expenses that erode bank earnings and, in some cases,
might erode capital levels.
SECOND DRIVER -- REDUCED CREDITWORTHINESS OF THE SPANISH SOVEREIGN
Amidst the ongoing euro area debt crisis, the Spanish government's
rising budget deficit and the renewed recession, sovereign creditworthiness
has declined. This decline is a driver of today's bank rating
actions, and it is reflected in the recent two-notch downgrade
of the government bond rating to A3, with a negative outlook (see
13 February 2012 press release "Moody's adjusts ratings of 9 European
sovereigns to capture downside risks": http://www.moodys.com/research/Moodys-adjusts-ratings-of-9-European-sovereigns-to-capture-downside--PR_237716).
Moody's says that the standalone credit strength of many Spanish
banks has weakened, as they are linked in multiple ways to the sovereign.
These linkages include (i) the impact of the government's financial
position on the domestic economy; and (ii) the large exposures of
most banks to their domestic government and to other counterparties who
depend on the government.
Reduced government creditworthiness also affects the ability of the government
to support banks, as discussed under "Ratings Rationale --
Senior Debt and Deposit Ratings" below.
THIRD DRIVER -- RAPID ASSET-QUALITY DETERIORATION
Another factor underpinning today's rating actions is the sharp
increase of problem loans already observed and Moody's view that
loan delinquencies will continue to rise in coming quarters. The
rating agency bases this view partly on the very weak performance of loans
to companies in the real-estate and construction sectors,
which accounted for 23% of Spanish banks' lending to the
private sector at year-end 2011. Moreover, Moody's
expects the recession and very high unemployment to cause asset-quality
deterioration also for loans to households and non-real-estate-related
businesses. These loan categories have shown only moderate weakening
Accelerating problem loans in the real-estate sector have already
driven total domestic non-performing loans of the Spanish banking
system to 8.2% of total loans at the end of February 2012,
up from less than 1% at year-end 2007 (source: Bank
of Spain). Moody's notes that the amount of non-paying
assets is even higher, if real estate acquired as payment-in-kind
from troubled borrowers is included.
FOURTH DRIVER -- RESTRICTED MARKET FUNDING ACCESS
Contributing to today's rating actions, Spanish banks are
facing less cost-effective, volatile and at times restricted
access to wholesale funding markets. Moody's recognises that
Spanish banks on average funded 46% of total assets with deposits
at year-end 2011 (source: ECB), a high level compared
with other Western European banking systems. Nonetheless,
banks rely to varying degrees on market funds, leaving most susceptible
to the persistent market tensions.
Partly due to market tensions, Spanish banks have increased their
ECB borrowings by more than six times since June 2011, to the highest
level in absolute terms among euro area banking systems as of April 2012.
The availability of three-year funds from the ECB has mitigated
near-term funding stress. However, significant central
bank reliance raises the issue of how Spanish banks will be able to reduce
their ECB funding reliance over time. Whilst Spanish banks have
deleveraged in 2011 by not fully renewing maturing loans, the scope
for further deleveraging is unclear.
RATINGS RATIONALE -- SENIOR DEBT AND DEPOSIT RATINGS
For five banks, today's downgrades of their debt and deposit
ratings reflect not only reduced standalone credit profiles, but
also Moody's assessment that the ability of the Spanish government
to provide future support to Spanish banks has declined. Moody's
recognises the Spanish government's supportive actions to address
banking sector challenges, most recently through stricter provisioning
requirements and a plan for banks to transfer real-estate assets
acquired from troubled borrowers to special-purpose vehicles.
However, Moody's believes the Spanish government's ability
to support its bank's debt and deposit ratings is consistent with
the level implied by the sovereign's debt rating, currently
A3. That is, the Spanish government is unlikely to choose
to prioritize its available funds to provide capital for banks over paying
its own sovereign debt investors. Moody's had previously
assumed that the government's willingness and capacity to support
banks in a crisis could exceed its capacity to service its own debt and
thus lift a bank's ratings up to one notch above the sovereign.
The downgrades of 13 banks' short-term ratings followed the
downgrades of their long-term ratings, consistent with Moody's
standard mapping of short-term to long-term ratings.
RATIONALE FOR DOWNGRADE OF GOVERNMENT-GUARANTEED DEBT
Following the two-notch downgrade on 13 February of the Spanish
government's bond rating to A3, Moody's has today downgraded to
A3 the government-guaranteed senior debt of five Spanish banks
whose (unguaranteed) senior debt ratings were previously higher than the
government rating. The A3 ratings assigned are based on the unconditional
government guarantee, which directly links them to the ratings of
the Spanish government.
RATINGS RATIONALE -- SUBORDINATED DEBT AND HYBRID RATINGS
Moody's has today downgraded the subordinated debt and hybrid ratings
of nine Spanish banks in line with the downgrades of their standalone
credit assessments. Moody's had previously removed government
support assumptions from its ratings of subordinated debt and hybrid instruments
of Spanish banks on 12 December 2011, see "Rating Action:
Moody's reviews Spanish banks' ratings for downgrade; removes systemic
support for subordinated debt" (http://www.moodys.com/research/Moodys-reviews-Spanish-banks-ratings-for-downgrade-removes-systemic-support--PR_232353).
ACTIONS FOLLOW REVIEW ANNOUNCEMENTS ON 15 FEBRUARY 2012 AND OTHER DATES
Today's rating actions follow Moody's decision to review for downgrade
the ratings for many European financial institutions, including
Spanish banks, see "Moody's reviews ratings for European Banks",
15 February 2012 (http://www.moodys.com/research/Moodys-Reviews-Ratings-for-European-Banks--PR_237914).
On 7 May 2012, Moody's extended the review for Santander to
its short-term ratings (see "Announcement: Moody's
extends Santander's current ratings review to include its short-term
Moody's previously placed several Spanish bank ratings on review
on 12 December 2011, see "Rating Action: Moody's reviews
Spanish banks' ratings for downgrade; removes systemic support for
subordinated debt" (http://www.moodys.com/research/Moodys-reviews-Spanish-banks-ratings-for-downgrade-removes-systemic-support--PR_232353);
"Announcement: Moody's reviews Banco Popular's ratings for
downgrade and ratings of Banco Pastor for upgrade (Spain)",
10 October 2011 (http://www.moodys.com/research/Moodys-reviews-Banco-Populars-ratings-for-downgrade-and-ratings-of--PR_227988);
"Announcement: Moody's reviews Unicaja's ratings for downgrade
and Caja Espa?a's ratings for upgrade following merger agreement",
27 September 2011 (http://www.moodys.com/research/Moodys-reviews-Unicajas-ratings-for-downgrade-and-Caja-Espa?as-ratings--PR_226509).
WHAT COULD MOVE THE RATINGS UP/DOWN
Moody's believes that rating upgrades are unlikely in the near future
for banks affected by today's actions, for the reasons given
above. Whilst the current rating levels and outlooks incorporate
a degree of expected further deterioration, the rating agency is
of the opinion that the banks' ratings may decline further if (i)
operating conditions worsen beyond Moody's current expectations;
(ii) the Spanish sovereign's creditworthiness declines further;
(iii) asset-quality deterioration exceeds Moody's current
expectations; and (iv) pressures from market-funding restrictions
However, Moody's believes that a limited amount of upward
rating momentum could develop if the banks substantially improve their
credit profiles and resilience to the prevailing conditions. This
may occur through increased standalone strength, for example as
a result of bolstered capital and liquidity buffers, work-out
of asset-quality challenges, improved earnings or improved
funding conditions. Ratings could also benefit from increased external
For further information refer to:
- List of Affected Issuers http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_142024,
17 May 2012
- Special Comment: Key Drivers of Spanish Bank Rating Actions,
17 May 2012 (http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_141658)
- Press Release: Moody's Reviews Ratings for European Banks,
15 Feb 2012 (http://www.moodys.com/research/Moodys-Reviews-Ratings-for-European-Banks--PR_237914)
- Special Comment "How Sovereign Credit Quality May Affect Other
Ratings", 13 Feb 2012 (http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_139495)
- Special Comment: Euro Area Debt Crisis Weakens Bank Credit
Profiles, 19 Jan 2012 (http://www.moodys.com/research/Euro-Area-Debt-Crisis-Weakens-Bank-Credit-Profiles--PBC_137981)
- Special Comment: European Banks: How Moody's Analytic
Approach Reflects Evolving Challenges, 19 Jan 2012 (http://www.moodys.com/research/European-Banks-How-Moodys-Analytic-Approach-Reflects-Evolving-Challenges--PBC_139207)
Moody's webpages with additional information:
The methodologies used in these ratings were Bank Financial Strength Ratings:
Global Methodology, published in February 2007, and Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: Global
Methodology, published in March 2012. Please see the Credit
Policy page on www.moodys.com for a copy of these methodologies.
BANK-SPECIFIC RATING CONSIDERATIONS
BANCO SANTANDER S.A. (A3/C/a3, negative outlook)
The two-notch downgrade of Santander?s BFSR and standalone
credit assessment to C/a3 from B-/a1 is driven primarily by the
expected negative impact on earnings and asset-quality indicators
stemming from the bleak economic prospects in many of Santander's
core markets, namely Spain and Portugal (and, to a lesser
extent, the UK) that together account for 67% of the group's
loan book. The downgrade is also driven by Santander's reliance
on market funding which, albeit partly mitigated by manageable debt
maturities, exposes the bank to changes in market sentiment.
Moody's believes that these credit-negative factors outweigh
the group's significant geographical diversification that makes
Santander the Spanish bank that is least exposed to the challenging domestic
operating environment as well as its proven capacity to strengthen its
risk absorption capacity during the current crisis. Moody's
expectation that these rating drivers may persist for some time --
and possibly intensify -- underpins the negative outlook
on the bank's standalone BFSR.
Regarding the potential support that Santander could receive from the
Spanish government -- and which could influence the ratings
uplift for the debt and deposit ratings from its a3 standalone strength
-- Moody's believes the Spanish government's
ability to support Spanish banks' debt and deposit ratings is now
constrained by the level of the sovereign rating itself, currently
A3. For this reason, the government's debt rating does
not provide uplift to Santander's standalone rating, even
though Santander benefits from a very high expectation of systemic support.
The outlook on the A3 long-term deposit rating is negative,
reflecting both the negative outlook on the Spanish government bond rating
and the negative outlook on Santander's standalone C/a3 ratings.
BANCO ESPA?OL DE CR?DITO (BANESTO) (A3/C-/baa2,negative
The downgrade of Banesto's rating to A3/P-2 from A2/P-1
is driven by the downgrade of its parent (Banco Santander) to A3/Prime-2
from Aa3/Prime-1. The standalone baa2 credit assessment
was not on review and retains a negative outlook.
SANTANDER UK (A2, negative outlook; C-/baa1, stable
The downgrade of Santander UK's long-term bank deposit and
senior debt rating to A2 from A1 is driven by the downgrade of the standalone
BFSR of its parent (Banco Santander) to C/a3 from B-/a1.
The P-1 short term rating and the standalone BFSR of C-/baa1
(which has a stable outlook) were not on review and have been affirmed.
This concludes the rating review initiated on February 21, 2012.
Moody's says that because of the downgrade of Banco Santander's
standalone rating, Santander UK now benefits from only one notch
of rating uplift from parental support. However, Santander
UK continues to benefit from one notch of uplift from UK systemic support
given (i) its nationwide network; (ii) its important role in the
UK payments system; and (iii) its large market shares in UK deposits
and loans. This means that Santander UK is now rated one notch
higher than its parent. Moody's believes that this is appropriate,
because (i) it reflects Santander UK's general funding independence
from Banco Santander; (ii) Santander UK has no direct exposure to
the Spanish government (or regional governments); and (iii) as a
systemically important bank in the UK, Moody's believes there
is a low likelihood that the FSA would allow Santander UK to substantially
weaken itself in order to support the parent.
Moody's has also downgraded by one notch Santander UK's subordinated
debt, junior subordinated debt and preference share ratings,
as they are driven by the bank's "adjusted" standalone rating, which
is now a3 (including parental support), previously a2. The
outlook on the long-term debt and deposit rating of Santander UK
is negative, reflecting the negative outlook on the standalone financial
strength rating of Banco Santander.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A (BBVA) (A3/C/a3,
BBVA's revised ratings and negative outlook reflect its sensitivity
to a further deterioration of the operating environment. This is
reflected by a vulnerability under Moody's more stressed scenario,
given the 55% weight of BBVA's loan book in its domestic
market. However, Moody's notes that the relatively
solid performance of BBVA's domestic book, compared with those
of its peers, is largely due to the early recognition of losses
that the bank incurred in 2009 in its domestic real-estate book,
which partly stabilised its asset-quality indicators. Although
BBVA has significant geographic diversification with 72% of its
earnings generated in developing markets (with a particular strong franchise
in Mexico), Spain remains its single largest market by loan distribution;
conditions within Spain therefore significantly affect the group's
With Spain now in recession, there is potential for profitability
and asset quality to weaken further during 2012. Moody's
notes that BBVA has a relatively robust liquidity framework, including
a substantial portfolio of central bank eligible assets that are sufficient
to cover wholesale maturities for a period exceeding 12 months.
However, the rating agency notes that BBVA relies significantly
on confidence-sensitive market sources, and there is a risk
that the current more restricted and costly market access will continue
for an extended period. Uncertainty regarding when BBVA will again
be able to fund itself regularly -- and on an economic basis
-- is therefore a key credit risk and rating driver.
BBVA's A3 long-term deposit and debt rating is now at the
same level as the Spanish sovereign. Moody's believes that
the Spanish government's ability to support Spanish banks' debt
and deposit ratings is now constrained at the level of the sovereign rating,
currently A3. For this reason, although BBVA benefits from
a very high expectation of systemic support, its debt rating does
not receive any uplift from its a3 standalone credit assessment.
The outlook on the A3 long-term deposit rating is negative,
reflecting both the negative outlook on the Spanish government bond rating
and the negative outlook on BBVA's standalone BFSR.
CAIXABANK (A3/C-/baa1, review for downgrade)
Moody's says that the domestic focus of CaixaBank's loan book
is the main driver for the three-notch downgrade of the bank's
ratings. The loan-book focus on the domestic market will
continue to weigh on the bank's profitability and asset-quality
metrics until economic conditions in Spain become more favourable,
which Moody's believes is unlikely in the near-term.
At end-2011, CaixaBank reported a material increase in problem
loans of 32% reaching a problem loan ratio of 5.1%
-- which is nevertheless below the system's average of 7.6%
-- and a further increase by 30% at end-March
2012, year-on-year. With a 28.16%
real estate problem-loan ratio, the bank's exposure
to this sector (at 17% of its loan book) has a particularly weak
credit profile. However, Moody's acknowledges the sound
performance of CaixaBank's book of mortgages to individuals, with
a problem loan ratio of 1.57% at end-March 2012.
Moody's notes that CaixaBank has the strongest liquidity and funding
profile amongst the largest rated Spanish banks, underpinned by
a strong retail funding base (69% of total funding), manageable
debt maturities and a sizeable portfolio of ECB eligible assets that are
sufficient to cover wholesale maturities for a period significantly exceeding
12 months. However, the rating agency notes that there is
a risk that restricted and costly market access might continue for an
extended period. As a result, uncertainty regarding when
Caixabank will again be able to fund itself regularly in the markets --
and on an economic basis -- is a key credit risk and an
important rating driver.
Despite the relatively good performance of the bank's pre-provision
income, Moody's expects that the bank will find it difficult
to improve its recurring profitability given the low interest-rate
environment and subdued business growth. Moreover, further
downward pressure on CaixaBank's recurring and bottom-line
profitability will be exerted by (i) Moody's expectation of further
asset-quality deterioration; (ii) the associated loan-loss
provisions and increased pressure on funding costs; and (iii) Spain's
weakening operating environment.
In terms of capital adequacy, at 12.4% core capital,
CaixaBank is resilient to Moody's base-case scenario;
however, given its domestic focus, the bank is somewhat vulnerable
to the more stressed scenarios.
Moody's decision to extend the review for downgrade of CaixaBank's
ratings is driven by the ongoing merger process with Banca Civica,
which is not sufficiently progressed at this stage to conclude the review.
The review will focus on the credit profile of the combined entity emerging
after the integration with Banca C?vica, which is likely
to have a weaker credit profile than CaixaBank's standalone credit strength.
Furthermore, the rating review will focus on (i) the strategic fit
of this acquisition for CaixaBank in the challenging economic domestic
market; (ii) an assessment of the losses Moody's expects will
be embedded in the new bank's asset portfolios. This will provide
a key input to the determination of the new entity's risk absorption capacity,
its ability to withstand deterioration in its loan book and its sovereign
exposures, and its capacity to generate capital through stressed
core earnings and other capital-growth initiatives. Moody's
notes that at the inception of the merger, the combined entity is
set to take EUR3.4 billion pre-tax fair value adjustments
against Banca Civica's shareholders equity that, consequently,
will be reduced to zero. The EUR3.4 billion comprises EUR2.8
billion associated to its loan book, EUR300 million to acquired
real estate and EUR300 million to other items. This clean-up
will significantly increase the coverage level of existing problem loans,
reducing the need for further impairments; (iii) the pro-forma
risk-adjusted recurring profitability and cost efficiency indicators
of the combined entity; and (iv) the ability of the new entity to
address debt maturities -- which will close to double the amount
of maturing debt for 2012 (EUR4.3 billion at C?vica versus
EUR2.3 billion at CaixaBank) accounting for 2% of the combined
balance sheet -- in light of the ongoing system-wide constraints
to access the capital markets for term funding.
CAJA DE AHORROS Y PENSIONES DE BARCELONA (LA CAIXA) (Baa2, review
Moody's rating actions on La Caixa follow those of CaixaBank's;
La Caixa's issuer rating has thus been downgraded to Baa2 from A2.
Although La Caixa has the legal status of a savings bank, it neither
takes deposits nor carries out any banking activities. La Caixa's
rating is two notches below CaixaBank's ratings --
its main operating subsidiary -- reflecting the structural
subordination of La Caixa's current creditors to those of the operating
bank (i.e., CaixaBank). This notching also
reflects the risk stemming from La Caixa's portfolio of real-estate
assets, which Moody's believes could be subject to additional
CAJA RURAL DE NAVARRA (Baa1/C-/baa1, negative outlook)
Moody's says that the one-notch downgrade of Caja Rural de
Navarra's (CRN) BFSR and standalone credit assessment to C-/baa1
from C/a3 reflects Moody's expectation of further pressure on CRN's
credit fundamentals stemming from the weak operating environment.
Despite this, Moody's notes that the entity operates in (and
is predominantly focused on) the region of Navarra, one of the wealthiest
regions in Spain. In 2011, the debt-to-GDP
ratio of this region amounted to 12.9% (68.5%
for Spain) and GDP per capita increased by 1.5% (compared
with a 0.7%). This region is also less affected by
the global financial crisis than other areas of Spain, with an unemployment
rate of 13.8%, compared with the national average
of 22.8% (as of December 2011).
The downgrade captures CRN's modest profitability indicators --
with a pre-provision income to risk-weighted assets ratio
of 1.19% as of December 2011-- together with
its weakening asset-quality indicators. The ratio of problem
loans as a percentage of gross loans was 4.0% at end-December
2011, compared with 3.6% a year earlier (7.6%
for the system).
Moody's expects the deterioration in asset quality to continue.
However, the rating agency believes that it should be moderate and
manageable for CRN, given (i) CRN's limited exposure to risks
outside of Navarra; (ii) the relative strength of the regional economies
where it operates; and (iii) the diversified nature of its loan book,
with relatively low exposure to the real-estate sector.
In addition, Moody's notes that CRN has very limited reliance
on wholesale funding, and it has a very strong retail-customer
base, which would allow the bank to withstand a disruption in capital
markets over the next 12 months. Furthermore, CRN displays
higher-than-average capital ratios, with the Tier
1 ratio standing at 12.6% at end-December 2011,
up from 12.0% a year before.
BANCO COOPERATIVO ESPANOL (Baa1/C-/baa2, review for downgrade)
The three-notch downgrade of Banco Cooperativo Espanol's
(BCE) BFSR and standalone credit assessment to C-/baa2 from C+/a2
reflects its vulnerability to the weak operating environment, due
to its role as service provider and central treasury provider for the
Spanish rural credit cooperatives sector. As such, BCE's
credit-risk concentration to the rural cooperatives sector is high,
while the sector's credit profile is weakening.
In addition, the downgrade captures BCE's relatively high
exposure to sovereign risk, when weighed against its capital base.
BCE's Tier 1 ratio stood at 13.2% at end-December
2011. However, Moody's notes that BCE's risk
weighting of its assets is very low, given that it is a wholesale
oriented institution acting on behalf of the rural credit cooperatives.
Its ratio of shareholders' equity to total assets amounted to 1.8%
at the end of 2011, and the ratio of risk-weighted assets
to total assets was 13.6%, revealing the low risk
weighting of BCE's assets. Notwithstanding this low risk
weighting, Moody's believes that BCE's high leverage
poses a significant risk, as it provides BCE with a very insufficient
cushion against any unforeseen, unexpected losses.
Furthermore, Moody's has maintained the review for downgrade
of BCE's ratings to account for longer-term impact on BCE's
business stemming from the adverse macro-economic environment and
the potential shift in BCE's activity. BCE's main task
has traditionally been that of managing excess liquidity for its member
banks, although Moody's notes that over recent months,
most of BCE's activity has related to the issuance of government-guaranteed
debt and access to ECB funding on behalf of its member banks.
Moody's review will focus on (i) the wider effects on BCE's
customer base stemming from the persistent pressures and uncertainties
caused by the very difficult operating environment; and (ii) the
sustainability of BCE's franchise in light of the consolidation
movements in the rural cooperatives sector and the changes in its traditional
BANKINTER (Baa2/D+/baa3, negative outlook)
Despite displaying one of the strongest asset quality indicators among
Spanish banks with an NPL ratio of 3.3% as of year-end
2011 (7.6% for the system) and a relatively low exposure
to the commercial real estate segment -- which makes the
bank somewhat more resilient to the adverse domestic operating environment
--, the downgrade of Bankinter's BFSR to D+/baa3
from C/a3 is mainly driven by the bank's substantial dependence
on wholesale funding in the current context of restricted access to market
funding. Such reliance exposes Bankinter to market disruptions
and makes it difficult to meet scheduled maturities without deleveraging
or resorting to greater central bank funding (ECB funds plus outstanding
wholesale funds totalled 45% of total funding as of February 2012).
Weighing also negatively on the BFSR, Moody's believes it will be
difficult for Bankinter to achieve or even maintain its already modest
profitability levels, in light of the high unemployment level and
the contraction expected for the Spanish economy in 2012 and given the
domestic nature of the bank's operations.
Despite the better-than-average quality of Bankinter's
loan book, its capital position would not be entirely resilient
to Moody's conservative but plausible scenarios or further deterioration
in economic conditions in Spain.
CECA (Baa2/D+/baa3, review for downgrade)
The downgrade of CECA's BFSR and standalone credit assessment to
C/a3 to D+/baa3 reflects the pressures stemming from its business
model as provider of financial services to Spanish savings banks.
CECA is heavily exposed to the savings banks industry --
in terms of the largest exposures and by revenues. The concentration
towards savings banks represents a major rating constraint, which
is unlikely to change in the near term given the sector's weakening
credit quality and our expectations of further deterioration in the country's
While the three notch downgrade of CECA's standalone credit assessment
is driven by the weaker credit profile of its traditional clients,
there are other factors that further challenge the long-term sustainability
of CECA's business model and which have caused Moody's to
maintain the ratings on review for further downgrade. The ongoing
consolidation and restructuring process of the savings banks segment --
combined with the declining level of economic activity in Spain --
indicate a reduced demand for financial services that constrains CECA's
recurrent revenue generation capacity. The breaking-up of
the savings banks segment exerts further pressure on CECA's critical
role as leading services provider for a segment that, pre-crisis,
represented half of Spanish banking assets.
In addition to these challenges, Moody's notes that a significant
part of CECA's revenues are generated from capital-market
activities. Whilst Moody's acknowledge the good performance
of this revenue line in recent years and the conservative stance CECA
has taken on capital markets investments, it is subject to volatility
because it relies on the performance of financial markets as well as to
inherent vulnerabilities, such as confidence-sensitivity.
During the review process, Moody's will focus on the extent
to which all the aforementioned factors weaken CECA's credit profile
in order to assess whether it is consistent with the lower BFSR currently
CAJA RURAL DE GRANADA (Baa3/D+/baa3, negative outlook)
The two-notch downgrade of Caja Rural de Granada's (CRG)
BFSR and standalone credit assessment to D+/baa3 from C-/baa1
reflects its vulnerability to an adverse domestic environment, namely
its weakening asset quality and profitability indicators. The ratio
of problem loans as a percentage of gross loans increased to 5.87%
at end-December 2011 from 4.89% a year earlier (compared
with 7.6% for the system). This was mainly driven
by a deterioration of the exposures related to commercial real estate,
although Moody's notes that these exposures are relatively low compared
with those of its peers. In addition, CRG has other non-earning
assets related to real-estate acquisitions that result in a very
high non-performing asset ratio of 12.2%.
The downgrade also captures the bank's modest profitability indicators,
with the already low PPI-to-risk-weighted assets
ratio declining slightly further to 1.05% at end-December
2011 from 1.08% a year earlier. Moody's believes
there is likely to be further pressure on CRG's profitability and
asset-quality indicators, given the rating agency's
expectation of a weaker macro-economic environment in Spain.
Notwithstanding these pressures on some of the bank's credit fundamentals,
Moody's notes that the bank has very limited reliance on wholesale
funding, having a strong retail-customer base. As
a result, CRG maintains a comfortable liquidity position and could
withstand a disruption in capital markets over the next 12 months.
Furthermore, the bank's capital ratios are sound, with a Tier
1 ratio of 12.9% at end-December 2011, up from
a 11.9% a year before.
LIBERBANK (Ba1/D/ba2, negative outlook)
The downgrade of Liberbank's BFSR and standalone credit assessment
to D/ba2 from C-/baa2 captures the effects of the very weak operating
environment and constrained access to market funding on the bank's
Liberbank's performance deteriorated significantly throughout 2011
in terms of asset quality, with the NPL ratio raising to 7.3%
as of year-end 2011 (year-end 2010: 4.2%).
Profitability also declined, with the net interest income declining
by 27% year-on-year, which makes the bank's
standalone profile no longer consistent with a baa2 standalone credit
The bank's sizeable dependence on wholesale funding (31%
of total funding as of march 2012) exerts further pressure on the ratings
given the lack of refinancing options, other than central bank funding
or severe deleveraging measures. Weighing also negatively on the
BFSR is the bank's capital position, despite recent capital
strengthening (it increased its core capital to 10.1% by
year-end 2011 from 8.8% a year before), which
is vulnerable to Moody's scenarios of further economic deterioration.
According to these scenarios, the bulk of credit losses to be recognised
by the bank would stem from its significant exposure to the commercial
real estate segment.
CAJAMAR (Ba2/D/ba2, negative outlook)
Moody's says that the downgrade of Cajamar's BFSR and standalone
credit assessment to D/ba2 from D+/baa3 reflects the bank's
weakening fundamentals in terms of profitability and asset quality.
The NPL ratio rose to 6.03% at year-end 2011 from
4.8% by year-end 2010, mainly driven by the
deterioration of the commercial real-estate loan book; real-estate
acquisitions from troubled borrowers raises the non-earning assets
ratio to 10.7%. The bank's traditionally modest
profitability indicators declined in 2011, with the risk-weighted
recurring earnings power ratio declining to 0.69% (2010:
Given the domestic nature of Cajamar's operations, Moody's
expects that further deterioration is likely for the bank's profitability
and asset quality in the coming months, in light of the low level
of activity and the high levels of unemployment within the Spanish economy.
In addition, Cajamar has some reliance on wholesale funding,
at 24% of total funding as of February 2012, mainly in the
form of covered bonds and securitisation. This exerts further pressure
on the bank's standalone credit assessment, given the difficulties
to rollover market maturities and the lack of funding alternatives besides
central bank funding or deleveraging. Cajamar's BFSR is also
constrained by the vulnerability of its capital position to scenarios
of further losses, under Moody's scenario analysis.
LICO LEASING (Ba3, negative outlook)
For Lico Leasing, the deposit ratings downgrade to Ba3/Not-Prime
from Baa3/Prime-3 reflects the bank's very weak financial fundamentals
evidenced by (i) a high NPL ratio of 17% at the end of 2011 (raising
from 12.5% a year before); (ii) very weak profitability
indicators, with a severe contraction of the recurrent earning generation
power throughout 2011 (a 91% decline year-on-year)
and a reported net loss of 0.2% over average risk-weighted
assets; and (iii) a weak funding profile, due to its high reliance
on unsecured funding sources (mainly interbank deposits). Moody's
believes that the funding-profile issues pose a material credit
risk to Lico, because of the lack of liquidity available in the
In addition, Lico has incurred a significant drop in the level of
business volume, as companies' investments and the need for
financial leases have declined dramatically since the current economic
crisis started (its lending volumes have reduced by almost 60%
However, Moody's acknowledges that Lico is a strategic provider
of leasing services to the savings banks. Therefore, its
ratings benefit from a high probability of support from its shareholders
and provides an uplift to the deposit ratings from a standalone credit
profile that would otherwise be lower.
Finally, the sovereign's reduced creditworthiness contributed
to ratings downgrades for Unicaja Banco SA (Unicaja, A3 on review
for downgrade; C/a3 on review for downgrade), Banco Popular
Espanol SA (Banco Popular, A3 on review for downgrade; C-/baa1
on review for downgrade) and Banco Sabadell SA (Baa1 on review for downgrade;
C-/baa2 on review for downgrade). For the aforementioned
banks, reduced sovereign creditworthiness was the only rating drivers
of today's actions. Moody's continues to assess other
relevant credit factors for these banks.
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Moody's downgrades Spanish banks; ratings carry negative outlooks or remain on review for downgrade
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