S&P stands by ratings on six Spanish banks

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Standard & Poor's held steady its credit ratings for six Spanish banks, including La Caixa, Bankinter and Sabadell, on Monday amid concern about the strength of the Spanish financial sector.

"We have reviewed all financial institutions we rate whose banking businesses are mostly concentrated in Spain," the agency said in a statement.

"In light of the above mentioned factors, we affirmed the counterparty credit ratings of six of the seven institutions reviewed."

The announcement followed market tension last week over rumours of possible strains within the Spanish banking system.

S&P excluded the country's two biggest banks from the assessment -- Banco Santander and BBVA -- "due to their multinational presence" and included only four of its more than 40 savings banks.

The agency confirmed its "A/A-1" counterparty credit ratings on Caja Madrid, Banco Popular, Banco de Sabadell, Ibercaja and Bankinter as well as its "A/A-1+" for La Caixa.

"This underscores our view that these institutions have enough financial strength through existing loan loss reserves and future operating profits to absorb the credit losses that we expect," S&P said.

"In our view, most of them will end the 2008-2011 downturn with some excess provisioning."

However it lowered the rating on a seventh bank, Kutxa, from "A+/A-1" to "A/A-1".

The decisions "follow our upward revision of our estimates for loan losses for 2009-2011 for the country's banking industry, and our forecasts for sluggish domestic economic growth over the period."

It also took into consideration "the restructuring of the savings bank segment and its potential implications for the system's competitive dynamics and fundamentals," as well as "the low levels of investor confidence and very high volatility in funding markets."

The agency warned that "most of the outlooks are negative, reflecting the possibility that loan and operating performance may worsen more than we currently expect in a tough economic environment."

To calm market nerves about the strength of its financial institutions, the Bank of Spain announced last week that it will publish "stress tests" on the ability of its banks to withstand any sudden financial shocks.

EU leaders on Thursday agreed to release the results of similar tests.

Spanish banks got off relatively lightly from the global credit crunch in 2008 as the country's strict rules meant they did not invest heavily in the high-risk US home loans that hurt financial institutions elsewhere.

However, many regional savings banks have been badly exposed to bad debt following the collapse of the property sector at the end of 2008.

The government has encouraged their consolidation in order to maintain liquidity.

© 2010 AFP

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