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Home Credit Bureau India Moody’s downgraded debt ratings of 28 Spanish banks

Moody’s downgraded debt ratings of 28 Spanish banks

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There is no respite coming for Spanish government as Moody’s rating has downgraded long term debt rating of 28 Spanish banks  by one to four notches, pointing to the reduced credit-worthiness of Spain and expectations that the banks' exposure to commercial real estate will likely cause higher losses. The announcement from Moody’s came on the same day that Spain’s government formally asked for help from its European neighbors in cleaning up its stricken banking sector. 
 
The Spanish economy, the fourth largest of the 17 countries that use the euro currency, is suffering from the aftershocks of a real estate bust that has devastated families as well as banks. Unemployment is nearly 25 percent.
 
Spanish banks have already set aside about €100 billion ($125 billion) to cover property-related losses since 2008. They also need to add more than €80 billion to meet new and stricter provisioning and capital requirements.
 
The downgrades reflect Moody's view that the ability of the Spanish government to provide support to Spanish banks has declined. The ratings firm also noted that many banks don't have sufficient earnings and capital to withstand potential stresses.
 
Moody’s, however, said in a statement that the agency was encouraged by the broad measures being introduced by Spain to support its banks.
 
The downgrades have come at a time of great uncertainty in the global economy. Europe’s 17-nation currency union is under threat, the US economy is slowing and the economies of India, Brazil and China are not looking good.
 
EU leaders are meeting Thursday and Friday in Brussels, Belgium, for another summit aimed at reining in Europe’s debt crisis. Debt-wracked Greece is looking to renegotiate some of the budget-cutting measures it has agreed to in exchange for continued support from international lenders. 

Spanish government officials haven’t said how much they will seek from the loan package offered by the EU June 9. Two international audits last week found that as much as $77 billion could be needed. Spain wants the loans to go directly to the banks so that the government wouldn’t be responsible for repayment. That idea has met with resistance, however.
 
The size and interest rates of the loans likely will be discussed at the EU summit this week.



 

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