Standard and Poor’s Upgrades Spanish Banks

Standard and Poor's Upgrades Spanish Banks

Standard and Poor’s Upgrades Spanish Banks

Spain’s recovering economy, which emerged from recession in the second half of 2013, is slowly feeding through to the banks, fuelling a positive response from rating agencies like Standard & Poor’s.

Last month, S&P rose its rating on four Spanish banks, including top lenders Santander and BBVA. Santander was upgraded to BBB+ from BBB with a stable outlook, while BBVA saw an improvement to BBB/A-2 from BBB-/A-3, also with a stable outlook. Cecabank and Bankinter’s ratings were also enhanced with a positive outlook.

S&P said its thumbs up for Spain’s banks came in the wake of its May decision to raise the country’s sovereign debt rating by one notch to BBB from BBB-. That move followed peers Moody’s and Fitch’s nod to Spain’s ability to pay its debts after the country exited a European Union bailout programme this year.

S&P has upped its forecasts for Spain’s annual economic growth to an average of 1.6 per cent from 1.2 per cent, reflecting the impact of structural reforms. So are the banks finally ready to turn on the credit tap again?

Most are still issuing loans restrictively but new credit is growing, particularly amongst SMEs, which account for about 60 to 70 per cent of the economy.

SPAIN BANKS LURE FOREIGN INVESTORS

In 2012, Spain was forced to seek a 42-billion euro EU financial aid package to pull its banks out of a crisis sparked by a 2008 real estate crash, which left many saddled with huge soured loans. But a wide-ranging restructuring, including “bad bank” Sareb’s moves to dispose of bad property-related assets on lenders books, has also contributed to dragging the financial sector out of the mire.

Recent central bank data has shown that bad debts at the banks are falling compared with overall lending for the first time since the financial crisis began. And many market experts believe that the worst of Spain’s property slump is over.

At the same time, some banks have also turned to foreign investors to strengthen their capital. US billionaire George Soros has bought shares in state-owned Bankia and small lender Liberbank so far this year. Top investment banks like Citi are also the flying the flag for Spain’s lenders.

LOWER CREDIT RISK TO BENEFIT BANKS

In its June report, S&P highlighted that the gradual recovery in domestic demand and the uptick in business activity will reduce the credit risk for Spain’s lenders. Headwinds are likely to remain for some time, however, as the Eurozone‘s fourth largest economy struggles with high unemployment and companies and households find it difficult to pay debts.

For information on investing in Spain, contact corporate law firm Argali Abogados.

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