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Moody’s Maintains Negative Outlook on Spanish Banks

Moody’s Investors Service kept its negative outlook on Spanish banks, citing bad property loans and new European regulations.

The introduction of European rules designed to alleviate the cost to taxpayers of bank resolution processes has increased the risks for unsecured creditors, Moody’s said in a report on the outlook for the industry today. Meanwhile, bad loans will “remain at very high levels,” Moody’s said.

A real estate crash helped drive up losses for lenders that forced the government to seek a 41 billion-euro ($56 billion) bailout from Europe in 2012 to prop up former savings banks including Bankia SA. Moody’s has had a negative outlook on Spanish banks since 2008.

Spain’s emergence from the worst of its recent crisis when economic growth resumed in the third quarter of last year “will help limit further declines in credit quality as employment and domestic demand recover,” Moody’s said.

Even so, the main challenge for lenders is the real estate industry, which “will continue to weigh on the system’s performance, as the oversupply of residential property continues to depress prices,” Moody’s said.

Moody’s rates the debt and deposits of Spanish banks at Baa3/Prime-3 on average, with a standalone bank financial strength rating of D+.

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