Spanish Banks Face Negative Outlook: Moody’s

Spanish banks – major lenders to LatAm entities as well as underwriters of local currency bonds – are vulnerable to a slowdown at home, according to a study by Moody’s. A more pronounced weakening in local real estate, a challenging funding market and increasing burden on already highly indebted domestic households are among bearish negatives. “Although no Spanish bank has been directly exposed to the US subprime sector or to substantial write-downs related to complex structured products, the risk re-pricing process initiated around mid-2007 triggered a more pronounced turn in the credit cycle for Spain’s banking system and provides an overall negative credit environment,” the agency says. Moody’s says that during 2008 further increases in delinquencies are likely in view of a weakening labor market and anticipated house price correction. “Nevertheless, underpinned by solid core retail franchises and a high risk absorption capacity, the Spanish banking system as a whole should prove resilient to this weakened credit environment,” the agency adds.