Banco Popular Espanol SA, a Spanish bank forced to raise capital after stress tests in 2012, fell as much as 3.6 percent after Standard & Poor’s cut its debt rating on concern that bad loans are growing.
Shares in the Madrid-based bank declined 3.2 percent to 5.30 euros ($7.24) at 10:25 a.m., paring this year’s gains to 21 percent. S&P last night cut Popular’s long-term ratings one level to B+, four levels below investment grade, from BB- and maintained its negative outlook.
The latest downgrade from S&P, which five years ago had Popular rated at A+, is a reminder to investors that the lender is still struggling to stem asset losses even after an improving economic outlook for Spain propelled its share price higher. The magnitude of Popular’s non-performing assets and the pace at which they continue to deteriorate could hurt the bank’s “business stability,” S&P said.
“In our opinion, Popular’s continuing and material asset quality deterioration demonstrates weaknesses in Popular’s risk-management practices and ultimately undermines its capacity to preserve its business stability in the markets where it operates,” S&P said.
Popular’s total non-performing assets, including bad loans and foreclosed or acquired real estate, amounted to 29 percent of its loan book in December, S&P said.
The increase in Popular’s non-performing assets in the fourth quarter was due to a “strategic exercise of prudent and proactive management” as it positions itself for European stress tests, the bank said in an e-mailed statement today.