Moody’s maintains negative outlook on Spain’s banking system

Alberto Postigo, VP-Senior Analyst, Moody’s - Lunes, 14 de Julio

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Moody’s ha publicado hoy su informe anual sobre su perspectiva sobre el sistema bancario español. Moody’s mantiene una perspectiva negativa sobre el sistema bancario de España, sin cambios desde el año 2008.  Aunque Moody’s reconoce una tendencia a la mejora para las condiciones macroeconómicas, la liquidez y la capitalización, esto se sitúa en nuevo marco de resolución bancaria europea que ha aumentado los riesgos de crédito para los acreedores señores no garantizados, que ahora tienen menos probabilidades de beneficiarse del apoyo sistémico. La perspectiva negativa se debe al nuevo marco europeo de resolución bancaria y al nivel elevado de los préstamos con problemas, principalmente vinculados al débil sector inmobiliario en España.

The outlook for Spain's banking system remains negative, unchanged since 2008, says Moody's Investors Service in a new report published today. Whilst Moody's acknowledges an improving trend in terms of macroeconomic conditions, liquidity and capitalisation, the rating agency notes that this is set against Europe's new bank resolution framework (i.e., the Bank Recovery and Resolution Directive and the Single Resolution Mechanism), which has increased credit risks for senior unsecured creditors and drives the negative outlook for the system.

The new report: "Banking System Outlook: Spain", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

The new European bank resolution framework, voted to be adopted on April 2014 by the European Parliament and taking effect on 1 January 2015, has shifted the balance of risk to the downside for unsecured bank creditors across the European Union who -- so far -- benefit from some likelihood of systemic support. This negative outlook for systemic support notwithstanding, Moody's expects that the pace of economic recovery will accelerate over the course of 2014. "These conditions will lay the foundation for a gradual stabilisation in the banks' financial fundamentals over the 12-18 month outlook horizon, with GDP growth at 1.2% for the year, rising to 1.7% in 2015 -- as reflected in the positive outlook on the sovereign bond rating. However, the pace of the recovery will remain moderate in the coming years as the private sector addresses the reduction of its high debt levels," says Alberto Postigo, a Moody's Vice President - Senior Credit Officer, and author of the report.

Moody's also highlights that Spain's real estate sector will continue to weigh on the banking system's performance, as the oversupply of residential property continues to depress prices. "The stock of problem loans will remain at very high levels and will not reduce significantly over the outlook period, given that problem loans tend to lag behind changes in the economic cycle," adds Mr Postigo.

In addition, Moody's observes that the still tenuous recovery across the European Union likely means that interest rates will also remain exceptionally low for some time. These conditions, coupled with the large stock of non-earning assets and declining lending volumes, will limit Spanish banks' ability to boost net interest income, i.e., their most important source of earnings.

Moody's adds that while the environment remains challenging, the return to economic growth that began in the third quarter of 2013 will help limit further declines in Spanish banks' credit quality, as employment and domestic demand recover. The rating agency notes that over the outlook period, these improvements will help reduce banks' credit costs, thereby supporting profitability and internal capital generation capacity. Furthermore, Spanish banks' liquidity profiles are benefitting from continued deleveraging, and have regained access to debt capital markets, thus reducing their reliance on public or central bank assistance to meet funding needs.

 

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