Post on 26-Jun-2020
www.moodys.com
Banking Moody’s GlobalBanking System
Outlook
Table of Contents: Summary Opinion 1
Rating Universe 5 Positive and Negative Rating Trends 6 Government Support/Guarantee Programmes 6 Key Issues 7 Appendix 1: Credit Opinion on Spain 17 Appendix 2: What to Expect for GDP and NPLs? 19 Appendix 3: Asset Quality Deterioration Strategies 20 Appendix 4: Economic Indicators for Spain 21 Appendix 5: BFSR/Baseline Credit Assessment Mapping 22 Appendix 6 23 Moody’s Related Research 28
Analyst Contacts:
Madrid 34.91.310.14.54
Maria Cabanyes Senior Vice President
Alberto Postigo Perez Vice President -Senior Analyst
Maria Jose Mori Assistant Vice President-Analyst
Olga Cerqueira Assistant Vice President-Analyst
London 44.20.7772.5454
Johannes Wassenberg Managing Director
Javier Rodriguez Analyst
October 2009
Spain The outlook
1 for the Spanish banking system remains negative,
reflecting the impact of the ongoing economic recession and severe asset quality deterioration on banks’ risk absorption capacity. This outlook expresses Moody’s expectations for the fundamental credit conditions in the Spanish banking system over the next 12 to 18 months.
Moody’s Average Ratings *
Long-term LC/FC deposit/debt rating Aa3/Negative
Short-term LC/FC deposit/debt rating Prime-1
Bank financial strength rating (BFSR) C/Negative
Country Ceilings
LC/FC deposit/debt rating Aaa/Stable
LC/FC deposit/debt rating Aaa/Stable
* Average ratings are asset-weighted. The weight of Banco Santander and BBVA comprises 26% of the total assets of rated banks in Spain. ** Unweighted average ratings are A3/Prime-1/D+.
Summary Opinion
Moody’s maintains its negative outlook for credit conditions for the Spanish banking system over the next 12-18 months. Over the past 12 months, the pressure on Spanish banks has broadened from the real estate sector to the other sectors of the economy, resulting in: (i) an accelerated deterioration of asset quality; (ii) a further weakening of the existing cushions against losses, such as retained earnings, generic (anti-cyclical) provisions and unrealised capital gains; and (iii) a still challenging wholesale funding market and increased competitive pressure on the retail funding side.
1 Outlooks for industries or sectors represent Moody’s view on the likely future direction of credit conditions in that sector. They do not represent our projection
of rating upgrades versus downgrades.
2 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
On the face of it, Spanish banks have so far demonstrated remarkable resilience to these pressures. The built-up cushions have been effective in softening most of the reported deterioration of asset quality and profitability. At the same time, most banks have a resilient core franchise in regional retail banking, providing them with ongoing – and relatively stable – earnings streams. However, we remain concerned that many banks appear to be avoiding recognising the true scale of the asset quality deterioration in their books,2 which could result in the banking sector remaining weak (and ongoing low BFSRs) unless this is addressed more decisively.
However, the amount targeted by the government to support the banking sector (close to €100 billion has been made available under the FROB fund, see Government Support/Guarantee Programmes, below) should provide sufficient funds to address the capital shortfalls of Spanish banks under our base scenario, thereby supporting the current long-term ratings.
Extrapolating Moody’s estimates of lifetime loan losses for rated banks in the Spanish financial institutions universe, we get an approximate figure of €108 billion of losses under our base-case scenario, calculated as of year-end 2008. Against this estimated loss number, system-wide (general and specific) loan loss provisions amounted to €51 billion at the end of June 2009, which means that constituted provisions provide a coverage of expected losses of 47%.
This in turn means that Spanish banks still need to fund provisions of €57 billion3 on the basis of our assumptions regarding the performance of key asset classes, earnings and available capital.4 If we extrapolate the net loan loss provision cushions that have been built-up during the past six months (€6.3 billion), it would take banks close to five years to fully provision Moody’s estimation of losses. This would severely affect the capacity of many Spanish banks to generate profits during the coming years. Should the Spanish economy continue to deteriorate significantly, our stressed scenario estimates substantially higher losses, of up to €225 billion.
The deterioration of the Spanish banking industry’s asset quality has not reached its peak and we anticipate that a significant number of rated banks will report losses in the coming quarters. That notwithstanding, the mechanisms put in place by the Spanish government to ensure an orderly restructuring of the banking system should prevent insolvency situations; indeed, a number of savings banks are already in the process of discussing viability plans with the regulator. This situation of exceptional systemic support is reflected in the fact that no Spanish bank is currently rated lower than Baa3 (i.e. they are all within the investment-grade category).
Good performance in first phase of crisis as banks had limited exposure to structured credit products
During the first year of the ongoing financial crisis, Spanish banks were largely unaffected by sub-prime related losses. This was due to a variety of factors, such as strict banking regulations that prevented some of these activities, combined with a booming real estate market that reduced the pressure to find other ‘earnings-enhancing’ activities. While many international banks recorded significant write-downs on their sub-prime-related exposures, Spanish banks remained remote from the direct effects of the crisis and thus the need for government capital injections in the early parts of the global financial crisis was avoided.
ECB funding and government support mechanisms have kept Spanish banks afloat, but long-term challenges remain
The first effect of the crisis on Spanish banks was the disruption of the international wholesale funding markets, which saw banks reacting by increasing the amount of repo-eligible collateral, making use of ECB funding and participating in the government’s guaranteed debt issuance scheme. Longer term, Spanish banks will rethink their funding growth models. Clearly, a way to reduce rollover risks for institutions’ liquidity positions is to increase the weight of retail funding, which Spanish banks have been increasingly doing since mid-2008
2 Banks are often delaying the recognition of non-performing assets, be it by restructuring debt agreements or by resorting to voluntary agreements under
which the lender accepts the property as a payment in kind and releasing the debtor from his obligations 3 The calculation is conservative as it does not take the losses that materialised through charge-offs during H1 2009 into account as such information is not
available on a system-wide basis. 4 See Special Comment titled “How Moody’s Estimates Credit Losses for Spanish Banks”, published in June 2009
3 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
by offering attractive rates. However, as the amount of deposits that can be captured by Spanish banks is limited in the current economic and interest rate environment, most institutions will continue to focus on matching lending growth with deposit growth. While this should be feasible and desirable in the context of economic slowdown, returning to the liability-driven growth model could seriously hamper future credit growth.
Severe economic downturn will continue to depress banks’ revenue generation capacity
Spanish GDP growth slowed sharply to 0.9% in 2008 and is projected to decrease by 3.7% in 2009, according to the European Commission. The severe domestic demand adjustment, the sharp downturn in the real estate sector and the reduction in global commercial flows have translated into a sharp rise in unemployment, with the rate increasing to 17.9% at end-June 2009 from 8.6% at end-2007, and we expect a further increase to around 20% by 2010.
As a result, the Spanish banks’ operating environment has deteriorated rapidly and more severely than we previously expected. In addition, their earnings will be pressurised by lower interest rates and business growth will remain subdued.
Pressure was initially limited to the real estate sector...
The real estate sector in Spain had started on a decelerating trend by year-end 2007, while at the same time asset quality-related indicators slowly deteriorated. Nevertheless, the initial effects of this negative performance were limited as it was offset by the financial system's still good profitability.
The end of the booming cycle in the real estate sector in Spain was marked by the crash of some developers (e.g. Habitat or Martinsa-Fadesa). These events translated into significant credit and equity losses for those banks that had exposure to the companies and led to an overall increase in the system's problem loan ratio. Moody’s undertook several negative rating actions in 2007 and throughout 2008. The downgrades affected those institutions that had higher exposure to the real estate sector and borrower concentration, making them more vulnerable to a change in the real estate cycle than their peers.
Given that the operating environment continues to deteriorate and the economic downturn is affecting other economic sectors as well as the real estate market, pressure on the whole financial system is increasing as asset quality deterioration has started to impact all asset classes in the banks’ credit portfolios.
…but this has now spread to other economic sectors
Spain’s broad economy started to deteriorate in late 2008. Moody’s is concerned that the current recession may be more pronounced than previous economic crises and therefore that the recovery is less likely to be rapid. The collapse of the job market has been much deeper and more widespread across sectors than the 1990s recession, where the industrial sector was the most affected in terms of employment. We expect that this trend will continue throughout the rest of 2009 and 2010 and will translate into further asset quality deterioration in more sectors, exerting significant pressure on banks’ risk absorption capacities.
Among the worst affected sectors are households…
The adverse economic environment is having and will continue to have an impact on households, which were at the core of the Spanish growth model. Households have become increasingly likely to default on their debt payments, be it for consumer loans or mortgages, as sharply increasing unemployment and low income growth makes it difficult for them to cope with their high levels of indebtedness,5 even though the current low interest environment is beneficial. In addition, declining house prices mean that many are falling victim to negative equity, thus undermining overall consumer confidence.
5 Household debt to GDP stands at 90% versus 62% in France, 40% in Italy, 130% in the US and 150% in the UK.
4 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
…but SMEs have also become a concern
Of the total number of companies that went bankrupt in Q2 2009, 90% had 49 employees or fewer. This indicates a high degree of concentration of bankruptcies in the small and micro-segment, where recovery values are often very low. This adverse trend can also be seen in the sharply increasing trend in delinquencies since Q2 2008 for Spanish SME securitisations of all vintages.
Generic provisions will no longer serve as cushions for most institutions
Spanish banks have benefited from cushions such as the generic provisions, their still strong retained earnings, gains from the sale of investments and even their comparatively high levels of operating efficiency. We believe these cushions are likely to wane during the rest of 2009 and 2010. Generic provisions will likely be consumed by most institutions during the period – from the start of 2008 to the end of June 2009, the stock of generic provisions declined by approximately 20% – while earnings will be affected by higher provisioning requirements, lower business volumes and pressure on margins.
Current ratings appropriately reflect our view – no further system-wide rating actions likely unless changes to probability of systemic support materialise
We have recently downgraded a number of BFSRs. On average, BFSRs have been lowered by 3.5 notches since the beginning of January 2008, although the subsequent downgrades of debt ratings were limited to an average of 1.5 notches, supported by our assessment of an increased probability of government support during such a severe systemic crisis. Following these rating actions, we believe that the ratings are well positioned and we do not anticipate further system-wide rating actions. Banks will be closely monitored and there could be specific negative rating actions in the event that risks were underestimated or where mergers cause a significant dilution of the stronger entity’s credit profile. Mergers could also result in positive rating actions provided that the resulting entity enjoys a stronger credit risk and liquidity profile. The proven willingness of the Spanish government to support its banks is a key factor underpinning the high uplift in the banks’ ratings from their Baseline Credit Assessments (BCAs, which map directly from the BFSRs).
However, if Moody’s sees signs of a reduced probability of implicit or explicit government support then this could imply that downward pressure on the debt and deposit ratings could materialise, especially if banks have not succeeded in strengthening their standalone credit profile by then.
Higher risk profile of hybrid instruments
Moody’s also downgraded the dated subordinated debt of 17 entities, the junior subordinated debt of eight entities and the preference shares of 14 entities. Junior subordinated debt instruments are now rated one notch lower than dated subordinated debt for banks with a BFSR of at least C- and two notches lower for banks with a BFSR of D+ and below.
Given the heightened possibility of a P&L loss for many of these banks, Moody's applies an expected loss analysis to preference shares of banks with low BFSRs to capture the higher risk of coupon deferral, with the probability of a coupon deferral being linked to the strength of the bank, as reflected in its BFSR.
5 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Rating Universe
Entity Name BFSR Bank Deposit Rating (LT/ST) Outlook
Ahorro Corporación Financiera S.V., S.A. Baa1/P-2 Negative
Banca March S.A. C- A2/P-1 Negative
Banco Bilbao Vizcaya Argentaria S.A. B- Aa2/P-1 Negative
Banco Cooperativo Espanol S.A. C+ A1/P-1 Negative
Banco De Valencia S.A. D- Baa1/P-2 Negative
Banco Espanol de Credito S.A. (Banesto) C- Aa3/P-1 Negative
Banco Guipuzcoano D+ Baa1/P-2 Negative
Banco Pastor S.A. D A3/P-2 Negative
Banco Popular Espanol S.A. C- Aa3/P-1 Negative
Banco Sabadell S.A. C- A2/P-1 Negative
Banco Santander S.A. (Spain) B- Aa2/P-1 Negative
Bankinter S.A. C A1/P-1 Negative
Bilbao Bizkaia Kutxa C+ A1/P-1 Negative
Caixa Catalunya D- A3/P-2 Negative
Caixa d'Estalvis de Manresa (Caixa Manresa) D+ Baa1/P-2 Negative
Caixa d'Estalvis de Terrassa D Baa2/P-2 Negative
Caixa Galicia D A3/P-2 Negative
Caixanova D A3/P-2 Negative
Caja de Ahorros de Avila E+ Baa3/P-3 Stable(m)
Caja de Ahorros de La Rioja D+ A3/P-2 Negative
Caja de Ahorros de Santander y Cantabria D- A3/P-2 Negative
Caja de Ahorros de Valencia, C y A. (Bancaja) D- A3/P-2 Negative
Caja de Ahorros de Vitoria y Alava C A2/P-1 Negative
Caja de Ahorros del Mediterraneo D- A3/P-2 Negative
Caja de Ahorros Municipal de Burgos D Baa1/P-2 Negative
Caja de Ahorros y Monte de Piedad de Madrid D+ A1/P-1 Negative
Caja de Ahorros y Monte de Piedad de Segovia E+ Baa3/P-3 Stable(m)
Caja de Ahorros y Pensiones de Barcelona B- Aa2/P-1 Negative
Caja Duero D+ A3/P-2 Negative
Caja Espana de Inversiones E+ Baa1/P-2 Negative
Caja Insular de Ahorros de Canarias D- Baa1/P-2 Negative
Caja Laboral Popular Coop. de Credito C- A3/P-2 Negative
Caja Rural de Granada C- A3/P-2 Negative
Caja Rural de Navarra C A2/P-1 Negative
Cajamar Caja Rural, Soc. Coop. de Credito D+ A3/P-2 Negative
Confederacion Espanola de Cajas de Ahorro C Aa3/P-1 Negative
Dexia Sabadell S.A. C- Baa2/P-3 Negative
Ibercaja C- A2/P-1 Negative
Instituto de Credito Oficial Aaa/P-1 Stable
Lico Leasing S.A. Baa1/P-2 Negative
Santander Consumer Finance S.A. D+ A2/P-1 Negative
Unicaja C+ Aa3/P-1 Negative
6 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Positive and Negative Rating Trends
Strengths
High earnings predictability underpinned by solid retail franchises
Despite the depressed revenues, levels of cost efficiency rank among the best globally
Extensive branch network and close relationship with customers have led to an increase in the volume of deposits, reinforcing the system’s liquidity in the context of disrupted access to long-term financing
Challenges
Managing the high credit risk concentration by single name and within the real estate and construction sectors, in the context of Spain’s ongoing economic downturn
Improving recurring and bottom-line profitability in light of the country’s very weak credit trends and our expectation of an increase in provisioning requirements
Weakening capital adequacy levels resulting from our expectation of high losses from the credit portfolio and deteriorating revenue generation capacity
Government Support/Guarantee Programmes
Since 2008, the Spanish government has approved various measures to restore confidence in the market and support mechanisms for the financial system. While market confidence in banks in general has not yet been fully restored, we assume that the probability of systemic support for each individual financial institution in Spain is high and should protect investors against credit losses in the near term. Consequently, no Spanish bank is currently rated lower than Baa3 (i.e. within the investment-grade category).
However, we do not expect that the Spanish government will provide unqualified support for an unlimited period of time, but will instead reduce its support to the extent that restored market confidence allows it to be more selective with its backing. The key question for the Spanish banking system (as for many others where governments are currently providing support) is when such broad support should be withdrawn or reduced. If support is reduced only once those banks that need support have been sufficiently strengthened (or have been absorbed by stronger banks), then this would protect the current investment-grade ratings. However, if the government indicates earlier withdrawal of support, i.e. before all banks have returned to a sound standalone footing, then some further downgrades could occur.
The first stage of the Spanish government’s support package was to address the problems that the disruption of the capital markets had created for the banks’ liquidity positions. In October 2008, the Spanish government introduced a number of measures to support the Spanish financial system in accordance with the co-ordinated Eurozone plan (which was announced on 12 October 2008). These measures included: (i) the creation of a €30 billion-€50 billion emergency fund to provide liquidity to the financial system; (ii) the increase to €100,000 of the bank deposit guarantee provided by the Deposit Guarantee Funds (Fondo de Garantía de Depósitos, FGDs); (iii) the approval of up to €100 billion of state guarantees for new financing made since 14 October 2008 (the maximum maturity of the guaranteed instruments is limited to five years and the granting of state guarantees will come to an end on 31 December 2009); and (iv) the authorisation, on an exceptional basis and until 31 December 2009, for the Ministry of Economy and Finance to acquire instruments to strengthen the equity of Spanish credit institutions. The instruments mentioned by the law include preferred shares and participation certificates (cuotas participativas).
After the liquidity crisis eased, in June 2009 the Spanish government approved specific measures to ensure the sustainability of the financial system, principally a recapitalisation fund. More precisely, the government approved a plan for the recapitalisation and restructuring of the financial sector via Royal Decree 9/2009, 26
7 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
June 2009,6 which entailed the creation of a “fund for the orderly restructuring of the financial sector” – known as the FROB by its Spanish initials.
This fund will initially be endowed with capital of €9 billion, of which €2.25 billion will be contributed by the existing FGDs; the remainder will come from public funds. The FROB will be limited to leveraging itself up to three times in 2009, i.e. it can increase its volume by up to €36 billion, by issuing government-guaranteed debt and/or by seeking other funding measures. Going forward, the fund will be able to increase its leverage by up to ten times, which, together with the initial capital of €9 billion, would allow it to reach almost €100 billion.
To date, almost all Spanish financial institutions have used the liquidity support mechanisms established by the government either through liquidity auctions or the guarantee programme. However, no bank has so far made use of the recapitalisation fund despite our view of significant capital needs for a number of institutions. One of the key obstacles could be the different steps required by the government to access these funds and the time needed to comply with all requirements.
Those institutions that are in an unsustainable financial position and that need to enter into a restructuring process must submit a viability plan to the Bank of Spain, which will have to provide detailed information on the action that will be taken to restore the entity’s viability. Once this plan is approved by the regulator, the fund will grant financial support to ensure the successful accomplishment of the restructuring process. Currently, there are a number of institutions involved in such restructuring (chiefly through merger processes), but these still need to be validated by the Bank of Spain.
Key Issues
Good performance in first phase of crisis as banks had limited exposure to structured credit products
During the first half of the ongoing crisis, Spanish banks were largely unaffected by losses related to structured credit products. Spanish banks did not have major exposures to US sub-prime, SIVs or other troubled structured securities. This was due to a variety of factors, such as stricter banking regulation that prevented some of these activities and a booming real estate market, which reduced the pressure to find other ‘earnings-enhancing’ activities.
While the major financial institutions in most industrialised countries booked significant write-downs on their assets, subsequently requiring capital from their respective governments, write-downs in the Spanish financial system have so far been close to zero since the beginning of the crisis in summer 2007. Thus, capital injections from the Spanish government have been very limited7 (see Exhibit 1). In addition, Spanish banks’ profit and loss accounts have performed better than those of other European countries (see Exhibit 2) and the US, partly due to the building up of larger loan loss reserves, which have protected banks’ P&L.
6 “Spain’s New Restructuring Fund for its Banking System”, June 2009. 7 The Bank of Spain rescued Caja Castilla la Mancha (CCM) in March 2009. CCM has a balance sheet exceeding €26 billion (representing approximately
0.8% of total Spanish financial system assets); it required a €9 billion liquidity line and €1.3 billion of preference shares.
8 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Exhibits 1 and 2
Write-downs and public capital injections
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
US
Sw
itzer
land
Ger
man
y
Bel
gium U
K
Fran
ce
Irela
nd
Spa
in
% to
tal b
ank
asse
ts
Write-downs Public Capital injectionsSource: Bloomberg
Rtrn on equity (period end) (%)
-30-25-20-15-10-505
101520
2003 2004 2005 2006 2007 2008
Austria Italy FranceGermany Spain UK
Source: Moody’s calculations based on data of banks rated by Moody's, weighted by assets
ECB funding and government support mechanisms have kept Spanish banks afloat, but long-term challenges remain
Prior to the crisis, Spanish banks were able to expand their lending (see Exhibit 3) by raising funds on the international wholesale markets. The share of securitisations and covered bonds in total liabilities expanded from 13% to 36% in 2000-08 (see Exhibit 5) to compensate for the increase in the funding gap. However, the financial crisis put the sustainability of this model into question, with wholesale funding rapidly drying up.
Exhibit 3
62% 64% 63% 59% 58% 54% 52% 51% 51%
13% 13% 14% 17% 24% 28% 34% 37% 36%
10% 10% 10% 9% 9% 8% 8% 8% 8%
0%
20%
40%
60%
80%
100%
00 01 02 03 04 05 06 07 08
% to
tal l
iabi
litie
s
EquityOtherSecuritization, covered bonds and subord. liabilitiesDeposits
Source: Bank of Spain
Liabilities- Balance sheet. Spanish financial institutions
Since the intensification of the financial crisis, the ECB has taken a series of unprecedented measures: reducing the interest rate to 1% (from 4.25% in September 2008); extending the liquidity requested without limits (“full allotment”) at a fixed rate; increasing the list of eligible assets; purchasing euro-denominated covered bonds issued in the Eurozone, providing liquidity in foreign currency; and taking longer-term refinancing operations (LTROs), from six months (maximum) to 12 months.
9 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Similarly, state guarantees have abounded. A total of around €35 billion has thus far been used by 40 institutions (of an approved total of €100 billion for the period 2008-09). Additionally, the Spanish government has created an emergency fund that aims to purchase banks’ assets, as a result of which €19.3 billion has been provided to 53 institutions.
Many of the Spanish banks have increasingly used these sources of funding to replace their wholesale funding. The system’s extensive use of government funding and continued reliance on ECB funding reflects the malfunctioning interbank market. Banks could be exposed to funding problems if the ECB becomes more restrictive while market confidence has not been fully restored. Longer-term funding will therefore depend on how quickly and durably the securities markets recover. The long maturities of the issued covered bonds and RMBS have so far buffered some of the liquidity constraints for Spanish banks, but, but as shown in Exhibit 5, this could turn into a disadvantage from 2013, when many of these instruments are due. Should markets for long-term debt issuance remain clogged beyond that time, many institutions are likely to face refinancing problems.
Longer term, Spanish banks will rethink their growth models. Clearly, a way to reduce rollover risks for institutions’ liquidity positions is to increase the weight of retail funding, which Spanish banks have been increasingly doing since mid-2008. While such campaigns have had some success, we believe there are economic constraints on the amount of stable deposits that can be captured, which therefore constrains most of the banks, which continue to concentrate on matching lending growth with deposit growth.
This new focus is an important change for Spanish banks. While, in past years, they have been mostly asset driven – where lending growth was the priority and funding was assumed – they are now becoming more liability driven – where acquiring stable funding has become the main concern and dictates the strategy on the lending side. While this type of shift is desirable in the context of economic slowdown, it also puts an implicit constraint on future credit growth.
Exhibits 4 and 5
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2006 2007 2008 2009
mill
EUR
300,000
350,000
400,000
450,000
500,000
550,000
600,000
650,000
mill
EUR
For Spanish banks ECB (right-hand scale)Source: Bank of Spain
Net liquidity provided by the ECB to Spanish Financial Institutions (Open Market Operations)
Outstanding debt of Spanish Institucion by date of maturity (excluding commercial paper)
0%
10%
20%
30%
40%
50%
60%
70%
2009 2010 2011 2012 >2013
Source: Bank of Spain, FSR 2009
Severe economic downturn will continue to depress banks’ revenue generation capacity
During 2008, the global financial crisis turned into a deeper economic recession, which has now affected practically every major economy. Spanish GDP growth slowed sharply to 0.9% in 2008 and is projected to decrease by 3.7% in 2009, according to European Commission forecasts. The severe domestic demand adjustment, the sharp downturn in the real estate sector and the reduction in global commercial flows have translated into a sharp rise in unemployment, with the rate increasing to 17.9% at end-June 2009 from 8.6% at end-2007, with a further increase to around 20.5% expected by 2010, according to the European Commission.
10 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
As a result, the Spanish banks’ operating environment has deteriorated rapidly and more severely than we expected at the time of our last Banking System Outlook, in 2008. Exhibit 6 shows the very high correlation between GDP and non-performing loans (NPLs, in a recession, the NPL peak generally appears four-to-five quarters after the economic trough and the 1990s crisis supports this view). According to MoodysEconomy.com projections, the lowest year-on-year growth rate in Spain will have been in Q3 2009; on that basis, the NPL peak will appear around Q3-Q4 2010. Both indicators show a more severe deterioration than was seen in the 1990s crisis. In addition, Spanish banks’ earnings will be affected by lower interest rates while business growth will remain subdued.
Exhibit 6
-5%
-3%
-1%
1%
3%
5%
7%
86 89 92 95 98 01 04 07 10
GD
P yo
y
-2%
0%
2%
4%
6%
8%
10%
NPL
s ra
tio (i
nv s
cale
)
NPLs ratio (right axis) GDP yoy
Source: INE and Bank of Spain. Moody's forecast
NPLs and GDP in Times of Crisis
Nevertheless, the Spanish economy’s current specific characteristics (no possibility of devaluation and an inefficient labour market) and the international dimension of the crisis make it especially difficult to draw parallels with the past and to forecast the intensity and duration of the recession.
Pressure was initially limited to the real estate sector…
The construction and real estate sectors were at the core of the banks’ and savings banks’ growth model during the years preceding the crisis. Backed by ever-rising land and property values, banks steadily increased their exposure to property developers (as shown in Exhibit 7), often as a way of supporting their geographic expansion and almost exclusively with the ultimate goal of obtaining mortgage lending to individuals. While the sector experienced a deceleration towards the end of 2007, the first clear signs pointing to the end of the real estate cycle came in early 2008 with the collapse of Astroc (a developer) followed by the failure of Martinsa-Fadesa in July 2008, the largest corporate failure in Spanish history.
These translated into significant credit and equity losses for the exposed banks. The average NPL ratio for the real estate sector (construction and real estate developers) is 8.1% at end-June 2009, the highest by lending type (Exhibit 8). Clearly, there is overcapacity in the residential and commercial property market, translating into a lack of liquidity and price signals. Thus, a further challenge is to determine the true value of the real estate assets held as collateral (or repossessed) given the illiquidity of the market and the difficulty of obtaining realistic appraisal values.
11 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Exhibits 7 and 8
0%
20%
40%
60%
80%
100%
90 92 94 96 98 00 02 04 06 08
Other
Corporate services
Construction &developers
Corporate industry
Residencialmortgages
Breakdown of Credit Portfolio
Source. Bank of Spain
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
91 93 95 97 99 01 03 05 07 09
Total
Corporateservices
Construction. &Developers
CorporateIndustry
ResidencialMortgages
Source.Bank of Spain
NPLs
Against this background, starting in 2007 and continuing throughout 2008, Moody’s effected a number of negative rating actions, identifying those institutions that displayed higher exposure and concentration to the real estate sector and were hence more vulnerable to a change in the cycle. However, the economic downturn has now spread to other sectors beyond the real estate market and asset quality has started to deteriorate across the different types of lending, with real estate still being the most problematic.
…but this has now spread to other economic sectors
In late 2008, Spain’s broad economy started to deteriorate. As discussed, Moody’s is concerned that the current recession may be more pronounced than previous economic crises and therefore the recovery may be less rapid (See Appendix 4: Economic Indicators for Spain).
The construction sector has contributed the bulk of the initial rise in unemployment (it is responsible for 42% of the increase), but the contribution from other sectors such as industry and services has grown significantly in the past couple of quarters, which now account for 30% and 25% of the increase in unemployment, respectively (see Exhibit 10, data until June 2009). The collapse of the job market has been much more pronounced and widespread across more sectors than the 1990s recession, where the industrial sector (see Exhibit 9) was the most affected in terms of employment.
Moody’s expects that this trend will continue throughout 2009 and 2010 and will translate into further asset quality deterioration in broader sectors, exerting significant pressure on banks’ risk absorption capacity.
12 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Exhibits 9 and 10
-8%
-6%
-4%
-2%
0%
2%
4%
IV I II III IV I II III IV I II III IV I II III IV I II III IV
1991 1992 1993 1994 1995
annu
al ra
te e
mpl
oym
ent Industry
ConstructionServices
industrial cycle
Source: INE
Employment Performance 1990s Crisis
-8%
-6%
-4%
-2%
0%
2%
4%
IV I II III IV I II III IV I II III IV I II III IV I II III IV
2007 2008 2009 2010 2011
annu
al ra
te e
mpl
oym
ent Industry
ConstructionServices
Construction / industrial / services cycle
Source: INE
Employment Performance current Crisis
Among the worst affected market segments are households
Over the past ten years, households have been at the core of Spain’s economic growth and have led to the maintenance of robust internal demand through high consumption. However, the high rate of the increase in housing demand, low interest rates and past growth in employment have led to increases in Spanish households’ indebtedness. House purchases accounted for 36% of total private sector loans and 85% of household loans in 2008. In fact, the household debt burden has been continually increasing over the past 15 years, with the ratio of household debt to GDP rising from 40% to 90%. Spanish households are more indebted in terms of GDP than those in other countries such as France, Italy or Austria, although the ratio is below that of the US (130%) and UK (150%).
Rising unemployment, falling house and equity prices and tighter credit conditions are significantly reducing the debt servicing capacity of households. Along these lines, the problem loan ratio for households has been increasing and stood at 3% at end-June 2009, compared with 1% at the end of 2008. Moreover, asset quality performance shows a very high correlation with unemployment data, particularly in the weaker part of the economic cycle (see Exhibit 11). Given the adverse prospects for the Spanish labour market, which is expected to see a peak unemployment rate of 20%, we expect the NPL ratio to deteriorate further and put many banks under pressure, especially those that loosened their underwriting standards during the boom times.8
8 A factor that partly explains the speedy rise in bad debts is the changes that have been made to the accounting rules applying to the declaration of corporate
insolvency. The new Accounting Circular (CBE 4/2004) enforces a more prudent approach and requires earlier and fuller recognition of doubtful assets than its predecessor (CBE 4/1991); as such it has affected the doubtful assets ratio and the speed at which this ratio has increased. Bank of Spain estimates that since December 2007 the new accounting rules have driven a 10% increase in the doubtful assets ratio.
13 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Exhibit 11
0%
5%
10%
15%
20%
25%
30%
87 89 91 93 95 97 99 01 03 05 07 09
Une
mpl
oym
ent r
ate
0%1%2%3%4%5%6%7%8%9%10%
NP
Ls ra
tio
Unemployment rate NPL ratio
Source: INE and Bank of Spain
Unemployment and NPLs
1990s crisis current crisis
Notwithstanding the above, lower interest rates are (for the time being) easing the pressure on household debt servicing obligations.9
…but SMEs have also become a concern
The operating environment for Spanish non-financial corporations has deteriorated significantly, especially for the SME sector. The number of companies declared bankrupt rose by 175% year-on-year in Q2 2009. Of the total number of companies that went into bankruptcy in Q2 2009, 32% were from the construction industry, and 90% had 49 employees or less. This indicates a high degree of concentration of the bankruptcies in the small and micro-segment, where recovery values are often also very low. This adverse trend can also be seen in the sharply increasing trend in delinquencies since Q2 2008 in Spanish SME securitisations of all vintages10 (Exhibit 12). It is worth noting the importance of this segment in the Spanish economy where only 2.5% of corporates have 20 or more employees.
9 91% of housing debt has variable rates and the main index for adjusting floating rate loans is the 12-month EURIBOR, which declined to 1.33% in August
2009 from 4.5% in June 2008. 10 See: “Spanish SME Q1 2009 Indices”, published in May 2009.
14 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Exhibit 12
0
0.5
1
1.5
2
2.5
3
Jun-
04
Sep-
04
Dec
-04
Mar
-05
Jun-
05
Sep-
05
Dec
-05
Mar
-06
Jun-
06
Sep-
06
Dec
-06
Mar
-07
Jun-
07
Sep-
07
Dec
-07
Mar
-08
Jun-
08
Sep-
08
Dec
-08
Mar
-09
Del
inqu
ency
90+
- 36
0+ [%
of C
B]
2002 2003 2004 2005 2006 20072008 Index
Source.Moody's
Spanish SME 90-360 Days Delinquency Trend (by vintage)
Generic provisions will no longer serve as cushions for most institutions…
Bank of Spain has developed macro-prudential approaches to regulation and supervision to reduce the pro-cyclical nature of the banking sector. The introduction in 2000 of dynamic provisioning requirements (known as generic provisions) led to Spanish credit institutions enjoying some of the highest coverage ratios in Europe (see Exhibit 13) during the boom years, providing banks with a buffer of €51 billion in loan loss reserves – 20% of own funds at end-June of 2009 – against losses. The rapid increase in NPLs, however, has sharply reduced coverage of problem loans – from close to 210% at year-end 2007 to 68% one year later and 57% at end-June 2009.
According to Moody’s stress assumptions, the current level of loan loss provisions will not be sufficient to cover the losses that we estimate for Spanish banks, particularly if we consider that some institutions are already reporting coverage ratios of well below 50%.
Exhibit 13
Loan Loss Reserves % Problem Loans
0
50
100
150
200
250
300
2003 2004 2005 2006 2007 2008
Austria France Germany Italy Spain UK
Source: Moody’s calculations based on data of banks rated by Moody's, weighted by assets
15 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Current ratings appropriately reflect our view – no further system-wide rating actions likely unless changes to probability of systemic support materialise
In summary, the depth and speed of the deterioration in the banks’ risk absorption capacity (Exhibits 14 and 15) and our view that part of the Spanish banking system is in need of capital, as per our loss estimates,11 underpinned the rating actions on 15 June 2009 that saw the downgrade of 30 banks’ BFSRs by between one and four notches. The resulting distribution is shown in Exhibit 16.
Exhibits 14 and 15
0
20,000
40,000
60,000
80,000
100,000
00 01 02 03 04 05 06 07 08 March09
June09
EU
RO
S m
ill.
Net profitsRetained earningsCapitalImpaired loansTotal LLR (generic + specific)LLR (generic)
Own Funds, LLR and NPL. Banks
Source: Bank of Spain. Statistical Bulletin.Tab le 4.57
0
20,000
40,000
60,000
80,000
100,000
00 01 02 03 04 05 06 07 08 March09
June09
EU
RO
S m
ill.
Net profitsRetained earningsCapitalImpaired loansTotal LLR (generic + specific)LLR (generic)
Own Funds, LLR and NPL. Savings Banks
Source: Bank of Spain.Statistical Bulletin.Table 4.67
We generally expect banks with BFSRs of C or above to be resilient, even under a stress scenario. We expect banks rated between C- and the higher end of D+ (corresponding to an investment-grade BCA of Baa3) to cope reasonably well under Moody's anticipated loss assumptions, but could come under material pressure under a more severe scenario. Banks rated between the lower end of D+ (equivalent to a BCA of Ba1) and E+ display more modest fundamentals under the anticipated scenario and are highly sensitive to a more stressed scenario, resulting in an increased probability that third-party support would be required. Moreover, while D- and E+ rated banks have a similar potential for capital shortfalls under Moody's loss estimates, those banks rated D- generally have more robust business models and overall stronger risk profiles, and Moody's would expect them to emerge from any restructuring or recapitalisation with fewer structural changes required.
Due to an increased probability of systemic support during this crisis, the BFSR downgrades did not translate into similar downgrades of the banks' senior debt and deposit ratings. However, Moody’s believes that the Spanish government is willing and has the capacity to support its banking system if needed. This was also reflected in the rating actions of 15 June: 25 banks saw their senior debt and deposit ratings downgraded by either one (18 banks) and two notches (seven banks). Exhibits 16 and 17 illustrate how the debt and deposit rating distribution has been much less affected than the BFSR distribution as a result of the rating actions.
11 “How Moody’s Estimates Credit Losses for Spanish Banks”, published in June 2009.
16 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Exhibits 16 and 17
0%
5%
10%
15%
20%
25%
30%
A A- B+ B B- C+ C C- D+ D D- E+ E
% o
f ent
ities
BFSR 4Q08 BFSR 2Q09Source: Moody’s
BFS
0%
5%
10%
15%
20%
25%
30%
Aaa
Aa1
Aa2
Aa3 A1 A2 A3
Baa
1
Baa
2B
aa3
Ba1
Ba2
Ba3 B1 B2 B3
% o
f ent
ities
LT debt 4Q08 LT debt 2Q09Source: Moody’s
LT DEBT
Following these rating actions, we believe that the ratings are well positioned and we do not anticipate further system-wide actions. Clearly, institutions will be closely monitored and there could be specific rating actions in cases where risks have been underestimated or where mergers cause a significant dilution of the stronger entity’s credit profile. We should also note that the proven willingness of the Spanish government to support its banks is a key factor underpinning the high uplift in the banks ratings from their standalone base, particularly for the lower BFSRs. This implies that downward pressure on the debt and deposit ratings could materialise if the government were to decide to selectively withdraw its implicit or explicit support to the banks before the latter have time to recover and strengthen.
Higher risk profile of hybrid instruments
Among these banks, we also downgraded the dated subordinated debt of 17 entities, the junior subordinated debt of eight entities and the preference shares of 14 entities. For further details, please see the press release on the rating actions on Spanish banks, published on 15 June 2009.
Moody's sees the risk attached to the junior subordinated debt instruments in the unlikely event of liquidation as slightly higher than that attached to dated subordinated debt. The risk of coupon deferral and of loss absorption under a going-concern assumption is more limited than for preference shares given the junior subordinated perpetual, cumulative and optional deferral triggers. Nevertheless, the risk of such losses has increased. These two considerations led to the downgrade of these instruments, which are now rated one notch lower than dated subordinated debt for banks with a BFSR of at least C-, and two notches lower for banks with a BFSR of D+ and below.
The risk profile for the preference shares is different to that of the subordinated instruments. The coupons are non-cumulative and have a mandatory deferral trigger, which is a P&L loss (or regulatory capital shortfall). Given the heightened possibility of a net loss for many of these banks, Moody's applies an expected loss analysis to these instruments to capture the higher risk of coupon deferral, with the probability of a coupon deferral being linked to the strength of the bank, as reflected in its BFSR.
Notwithstanding the above, we note that the ratings for the hybrid securities were assigned based on Moody's existing methodology entitled “Guidelines for Rating Bank Junior Securities”, dated June 2007. Moody's released a Request for Comment entitled “Moody's Proposed Changes to Bank Subordinated Capital Ratings”, dated June 2009, in which it requested market feedback on potential changes to its bank hybrid rating methodology. Should Moody's implement this revised methodology as proposed, the ratings of some hybrid securities could potentially be downgraded.
17 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Appendix 1: Credit Opinion on Spain
Credit Strengths The credit strengths of Spain include:
High income levels after an extended period of convergence
Relatively strong government debt metrics and a relatively healthy banking system going into the crisis
Credit Challenges The credit challenges for Spain include:
Restoring its fiscal balance within a reasonable time horizon once the recovery gets underway
Ensuring the growth model isn't permanently impaired
Rating Rationale The Spanish government is rated Aaa, reflecting "very high" levels of economic, institutional and financial strength, which contribute to a "very low" susceptibility to event risk. Spain's GDP per capita is now very close to the level in the largest economies in the EU, having been one of the poorest members when it joined in 1986. This increased economic strength has been accompanied by improvements in institutional strength, not least to be able to implement the EU's acquis communautaire. The government also conducted generally prudent fiscal policies in the years prior to the crisis. Although mainly the result of unsustainable growth rates rather than underlying structural improvements, government debt fell to relatively low levels.
Rating Outlook Moody's considers the Spanish government to be a "resistant" Aaa credit. One of Moody's key rating considerations is the adjustment capacity of an economy in the face of a shock. In our opinion, Spain's economic `model' has taken a very severe hit but has not been permanently impaired, thereby meeting one of the important criteria for maintaining a stable rating outlook. Spain entered the global financial crisis from a comparatively robust fiscal position and whilst the government's debt metrics have subsequently deteriorated, they are unlikely to worsen to such an extent that they will undermine Spain's rating. In particular, a credible outline of how the large government budget deficit is likely to be brought under control over the medium term is beginning to emerge, with the bulk of the fiscal retrenchment expected to come from a reduction in the structural deficit. The overall deficit is unlikely to be reduced to the government's current target of 3% by 2012, but we expect that it should reach that level a year or so later.
What Could Change the Rating - Down The rating could come under pressure if current expectations about the resumption of growth or the trajectory of public finances are not met. The impact of the global economic crisis in Spain was exacerbated by the collapse in housing construction, which had been one of its main engines of growth. Sectors such as infrastructure services and renewable energies are likely to account for a larger share of GDP when output rebounds. Construction should also recover from its current very weak state, but is unlikely to regain the prominence immediately prior to the crisis. Growth in the next cycle is therefore likely to be slower than in the last, but it shouldn't collapse. If it does - or the public finances do not improve as expected, Spain's ratings will be reassessed.
Recent Developments The worst of the recession appears to be over in Spain: after falling 1.9% in the first three months of the year (quarter on quarter, actual rate), GDP fell only 1% in Q2. The latter is weaker than in some other Aaa credits/EMU members, but was expected given the ongoing correction in the construction sector. Positive growth is expected to resume by the end of the year. Given the lower than average contraction in output in Q1, Spain is still expected to record a growth rate in line with the Aaa/EMU average for the year as a whole. Moreover, the bulk of the increase in unemployment has probably occurred: having risen from a recent low of
18 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
a little under 8% just 2 years ago, the rate has already reached nearly 18% and is expected to peak at over 20% in 2010. Government support measures have limited the increase in unemployment.
Spain's economy benefited from the relatively healthy position of its banks at the outset of the global crisis. However, asset quality is now deteriorating and banks are likely to have to raise more capital. The government recently supplemented its existing support programmes for the banking sector with the Fund for Ordered Restructuring of Banks (FROB) which is likely to prove to be particularly useful in getting banks back on their feet. The main problems in the banking sector are now in the small savings banks. The programme, under the direction of the Bank of Spain, is likely to accelerate necessary restructuring amongst such banks through mergers and takeovers, thereby bringing about a reduction in capacity as the economy deleverages.
19 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Appendix 2: What to Expect for GDP and NPLs?
In a recession, the NPL peak generally appears four to five quarters after the economic trough and the 1990s crisis supports this (see Exhibits 9 and 10). According to Moody’s Economy.com projections, the lowest year-on-year growth rate in Spain will have been in Q3 2009; on that basis, the NPL peak will appear around Q3-Q4 2010. Both indicators show a more severe deterioration than was seen in the 1990s crisis.
Nevertheless, the Spanish economy’s current specific characteristics (no possibility of devaluation and an inefficient labour market) and the international dimension of the crisis make it especially difficult to forecast the intensity and duration of the recession. Along these lines, we do not believe that asset quality deterioration for the Spanish banking industry has reached its peak.
Exhibits 18 and 19
-5%
-3%
-1%
1%
3%
5%
7%
91 92 93 94 95 96
2007 2008 2009 2010 2011 2012
GD
P y
oy
1990s crisis, starting Q4 1990Current Crisis, starting Q4 2006Source: INE
GDP
forecast 0%
2%
4%
6%
8%
10%
12%
91 92 93 94 95 96
2007 2008 2009 2010 2011 2012
NP
Ls ra
tio
1990s crisis, starting Q4 1990Current crisis, starting Q42006
NPLs
Source: Bank of Spain
20 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Appendix 3: Asset Quality Deterioration Strategies
Spanish financial institutions have adopted different measures to cope with the deterioration in asset quality indicators and the increase in provisioning needs: (i) selling their industrial portfolios to obtain additional funds; (ii) cutting dividends – even to zero if necessary; and (iii) raising capital through preference shares. Another measure that the Spanish banks are taking is the acquisition of real estate assets, which prevents these exposures from being computed as problem loans. We include these acquisitions in our analysis of the volume of non-earning assets (see Exhibit 21). Adding these acquisitions to the NPL ratio, it increases by around 250 bps to 7%.
Exhibit 20
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
June-08 Dec-08 March-09 June-09
mill
EU
R
0%
1%
2%
3%
4%
5%
6%
7%
8%
NPL
s ra
tio
RE acquisition (Savings Banks)RE acquisition (Banks)NPLsNPLs (with acquisition)
NPLs ratios vs. Corporate RE acquisitions
Source. AEB & CECA. Estimated by Moody´s
21 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Appendix 4: Economic Indicators for Spain
Economic Indicators for Spain
Spain: Selected Economic Indicators
1990-94 (previous crisis)
Peak/trough 2002-08 (expansion period)
2008 2009 (current crisis)
Last data 2009 (forecast)*
GDP 1.2% -3% (trough, Q1 93) 3.1% 1.2% -4.1% Q2 09 -3.7%
Unemployment rate 15.7% 19.9% (peak, Q1 94) 10.1% 11.3% 17.9% Q2 09 17.3%
CPI inflation 5.6% 6.7% (peak, 90) 3.3% 4.1% -0.8 Aug 09 0%
Interest rates for home purchases 14.5% 18% (peak, Jan 91) 4.2% 5.8% 3.1% July 09 --
Delinquency rate for home purchases 3.9% 5.5% (peak, Sep 94) 0.8% 2.4% 3% June 09 --
Overall delinquency rate 5.6% 8.5% (peak, Dec 93) 1.1% 3.4% 4.7% July 09 --
Loan loss coverage ratios 91.0% 76% (trough, Sep 94) 340% 68% 57% June 09 --
Bank capital levels 8.6% 9.2% (peak, Aug 92) 6.4% 8.4% --% Dec 09 --
Sources: INE, Bank of Spain, Spanish Mortgage Association, Moody’s calculations (*) European Commission
22 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Appendix 5: BFSR/Baseline Credit Assessment Mapping
BFSR/Baseline Credit Assessment Mapping BFSR Baseline Credit
Assessment (BCA)
A Aaa
A- Aa1
B+ Aa2
B Aa3
B- A1
C+ A2
C A3
C- Baa1
C- Baa2
D+ Baa3
D+ Ba1
D Ba2
D- Ba3
E+ B1
E+ B2
E+ B3
E Caa1
E Caa2
E Caa3
23 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Appendix 6
Average* Bank Financial Strength Ratings by Country September 2009
A-B+BB-C+CC-D+DD-E+E A
Canada (B)Singapore (B)
Hong Kong (B)Australia (B)
Switzerland (B-)Liechtenstein (B-)
Chile (B-)Finland (B-)
Netherlands (B-)New Zealand (C+)
Andorra (C+)France (C+)
Brazil (C)Jordan (C)Spain (C)
South Africa (C)Saudi Arabia (C)
Germany (C)Mexico (C)
United States (C)Sweden (C)
Italy (C)Jersey (C)
Czech Republic (C)Denmark (C)
Norway (C)Global Universe (C)
Belgium (C)United Kingdom (C-)
Greece (C-)Slovenia (C-)
Luxembourg (C-)Japan (C-)
Kuwait (C-)Israel (C-)
Trinidad & TobagoBermuda (C-)Malaysia (C-)
Qatar (C-)United ArabBahrain (C-)Cyprus (C-)
Portugal (C-)Oman (C-)Korea (C-)
Colombia (D+)Turkey (D+)
Slovak RepublicMauritius (D+)
India (D+)Poland (D+)
Bahrain - Off ShoreCroatia (D+)
Malta (D+)Morocco (D+)
Peru (D+)Austria (D+)Taiwan (D+)
Hungary (D+)Cambodia (D+)
Romania (D)Thailand (D)Bulgaria (D)
Guatemala (D)Panama (D)
Indonesia (D)Egypt (D)
Argentina (D)Philippines (D)
Russia (D)Pakistan (D-)
Tunisia (D-)Uruguay (D-)
Bolivia (D-)Ireland (D-)
Lithuania (D-)Mongolia (D-)
Venezuela (D-)Estonia (D-)Ghana (D-)
Lebanon (D-)Georgia (D-)Armenia (D-)
China (D-)Vietnam (D-)Ukraine (E+)Albania (E+)Belarus (E+)
Montenegro (E+)Uzbekistan (E+)Azerbaijan (E+)
Kazakhstan (E+)Latvia (E)
Iceland (E)Kyrgyzstan (E)
* Weighted by Assets
24 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Country Ceilings for Long-Term Bank Deposits, Domestic Currency September 2009
Baa3
Baa2
Baa1
A3 A2 A1 Aa3
Aa2
Aa1
Aaa
C Ca
Caa
3
Caa
2
Caa
1
B3 B2 B1 Ba3
Ba2
Ba1
AndorraAustralia
AustriaBahamas
BelgiumCanada
ChileCyprus
Czech RepublicDenmark
EurozoneFinlandFrance
GermanyGreece
Hong KongHungary
IcelandIreland
ItalyJapanLatvia
LuxembourgMacao
MaltaMexico
NetherlandsNew Zealand
NorwayPoland
PortugalSingapore
SlovakiaSlovenia
South AfricaSpain
SwedenSwitzerland
United KingdomUnited States of AmericaBermuda
Cayman IslandsCroatiaEstoniaKorea
LithuaniaBahrain
BarbadosIsrael
KuwaitMalaysiaMauritius
OmanQatar
ThailandTunisia
United Arab EmiratesBotswanaCosta Rica
RomaniaSaudi Arabia
TaiwanBrazilChina
ColombiaDominican Republic
Fiji IslandsIndia
RussiaTrinidad & Tobago
KazakhstanPhilippines
BelizeEgypt
GuatemalaHonduras
JordanMorocco
Papua New GuineaTurkeyAlbania
ArmeniaAzerbaijan
BulgariaJamaica
PeruSt. Vincent and the GrenadinesVenezuelaIndonesiaMongoliaPanamaUruguayBelarus
El SalvadorArgentinaCambodiaLebanonSuriname
UkraineVietnamPakistan
ParaguayBolivia
Bosnia and HerzegovinaMoldova
NicaraguaTurkmenistan
Ecuador
25 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Average* Long-Term Bank Deposits by Country, Domestic Currency September 2009
*Weighted by Assets
C Ca
Caa
3
Caa
2
Caa
1
B2 B1 Ba3
Ba2
Ba1
Baa3
Baa2
Baa1
A3 A2 A1 Aa3
Aa2
Aa1
Aaa
Canada (Aa1)Singapore (Aa1)Australia (Aa1)
Switzerland (Aa2)France (Aa2)
New Zealand (Aa2)Germany (Aa2)
Hong Kong (Aa2)Finland (Aa2)
Netherlands (Aa3)Sweden (Aa3)
Chile (Aa3)Japan (Aa3)
United Kingdom (Aa3)Norway (Aa3)
United States (Aa3)Denmark (Aa3)
Spain (Aa3)Jersey (Aa3)
Italy (Aa3)Mexico (Aa3)
Global Universe (Aa3)Luxembourg (Aa3)
Qatar (A1)South Africa (A1)
Belgium (A1)Portugal (A1)
Saudi Arabia (A1)Austria (A1)Kuwait (A1)
Slovenia (A1)Czech Republic (A1)
United Arab Emirates (A1)Malaysia (A1)
Israel (A1)Korea (A1)Brazil (A2)
Greece (A2)Taiwan (A2)
Oman (A2)Croatia (A2)
Trinidad & Tobago (A2)Bahrain (A2)Ireland (A2)
Slovak Republic (A2)India (A2)
Mauritius (A3)Cyprus (A3)
Thailand (A3)Poland (A3)Jordan (A3)Turkey (A3)
Romania (A3)Colombia (Baa1)
Malta (Baa1)Morocco (Baa1)Hungary (Baa1)
Egypt (Baa1)Tunisia (Baa2)
China (Baa2)Peru (Baa2)
Russia (Baa2)Indonesia (Baa3)
Estonia (Baa3)Guatemala (Baa3)
Uruguay (Baa3)Bulgaria (Baa3)
Philippines (Ba1)Cambodia (Ba1)
Venezuela (Ba2)Armenia (Ba2)Vietnam (Ba2)
Argentina (Ba2)Lebanon (Ba2)Pakistan (Ba3)Georgia (Ba3)
Mongolia (Ba3)Lithuania (Ba3)
Bolivia (Ba3)Uzbekistan (B1)
Ukraine (B1)Belarus (B1)Albania (B1)
Kazakhstan (B2)Latvia (B2)
Azerbaijan (B2)Kyrgyzstan (Caa1)
Iceland (C)
26 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Country Ceilings for Long-Term Bank Deposits, Foreign Currency September 2009
Baa3
Baa2
Baa1
A3 A2 A1 Aa3
Aa2
Aa1
Aaa
Ba1
Ba2
Ba3
B1B2B3Caa
2
Caa
3
Ca
C
AlderneyAustralia
Bahamas - Off Shore Banking CenterCanada
Cayman Islands - Off Shore Banking CenterDenmark
EurozoneGuernsey
Isle of ManJapanJersey
LiechtensteinNew Zealand
NorwaySark
SingaporeSlovakiaSweden
SwitzerlandUnited Kingdom
United States of AmericaBermuda
Hong KongKuwait
Panama - Off Shore Banking CenterQatar
United Arab EmiratesBahrain - Off Shore Banking Center
Cayman IslandsMacaoTaiwan
ChileChina
Czech RepublicEstonia
IsraelSaudi Arabia
BahrainBotswana
KoreaOman
PolandBahamasLithuaniaMalaysia
South AfricaHungaryIcelandMexicoRussia
St. Vincent and the GrenadinesThailand
Trinidad & TobagoBarbadosMauritiusPanama
TunisiaBulgaria
El SalvadorLatvia
RomaniaCroatia
KazakhstanAzerbaijan
BrazilColombia
Costa RicaEgyptIndia
MoroccoPeru
ArmeniaGuatemala
IndonesiaJordan
PhilippinesMontenegro
TurkeyUruguayVietnamAlbaniaBelarus
Fiji IslandsLebanonMongolia
Papua New GuineaSuriname
BelizeBosnia and Herzegovina
CambodiaDominican Republic
HondurasJamaicaPakistan
ParaguayTurkmenistan
UkraineVenezuelaArgentina
BoliviaEcuador
CubaMoldova
Nicaragua
27 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Average* Long-Term Bank Deposits by Country, Foreign Currency September 2009
*Weighted by Assets
Baa3
Baa2
Baa1 A3 A2 A1 Aa3
Aa2
Aa1
Aaa
C Ca
Caa
3
Caa
2
Caa
1
B3 B2 B1 Ba3
Ba2
Ba1
Canada (Aa1)Singapore (Aa1)Australia (Aa1)
Switzerland (Aa2)France (Aa2)
New Zealand (Aa2)Germany (Aa2)
Finland (Aa2)Netherlands (Aa3)
Sweden (Aa3)Hong Kong (Aa3)
Japan (Aa3)Liechtenstein (Aa3)United Kingdom (Aa3)
Norway (Aa3)United States (Aa3)
Denmark (Aa3)Spain (Aa3)
Jersey (Aa3)Italy (Aa3)
Luxembourg (Aa3)Qatar (A1)
Belgium (A1)Portugal (A1)Austria (A1)
Global Universe (A1)Slovenia (A1)
Chile (A1)Czech Republic (A1)
Kuwait (A1)United Arab Emirates (A1)
Saudi Arabia (A1)Bermuda (A1)
Israel (A1)Greece (A2)Taiwan (A2)
Andorra (A2)Korea (A2)China (A2)
Ireland (A2)Slovak Republic (A2)
Oman (A2)Bahrain (A2)Cyprus (A3)
South Africa (A3)Poland (A3)
Malaysia (A3)Bahrain - Off Shore (A3)Malta (Baa1)
Trinidad & Tobago (Baa1)Mexico (Baa1)
Thailand (Baa1)Hungary (Baa1)Mauritius (Baa2)
Tunisia (Baa2)Russia (Baa3)
Romania (Baa3)Estonia (Baa3)Bulgaria (Ba1)Panama (Ba1)
India (Ba2)Morocco (Ba2)
Peru (Ba2)Colombia (Ba2)
Egypt (Ba2)Brazil (Ba2)
Jordan (Ba3)Indonesia (Ba3)
Guatemala (Ba3)Lithuania (Ba3)Armenia (Ba3)
Philippines (Ba3)Azerbaijan (Ba3)
Uruguay (B1)Latvia (B1)
Montenegro (B1)Vietnam (B1)Turkey (B1)
Kazakhstan (B2)Mongolia (B2)Lebanon (B2)Albania (B2)Belarus (B2)
Cambodia (B3)Georgia (B3)Ghana (B3)
Pakistan (B3)Uzbekistan (B3)Venezuela (B3)
Ukraine (B3)Bolivia (Caa1)
Argentina (Caa1)Kyrgyzstan (Caa1)Iceland (C)
28 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
Moody’s Related Research
Credit Opinion: Spain, August 2009
Analysis: Spain, August 2009 (119775)
Banco Santander S.A., August 2009 (119351)
Banco Bilbao Vizcaya Argentaria S.A., July 2009 (119280)
Banking Statistical Supplement: Spain, December 2008 (113095)
Special Comments: How Moody’s Estimates Credit Losses for Spanish Banks, June 2009 (117448)
Calibrating Bank Ratings in the Context of the Global Financial Crisis, February 2009 (114705)
Spanish Banks and Real Estate, September 2007 (104955)
Rating Methodologies: Bank Financial Strength Ratings: Global Methodology, February 2007 (102151)
Incorporation of Joint-Default Analysis into Moody’s Bank Ratings: A Refined Methodology, March 2007 (102639)
Other: Moody’s Global Financial Risk Perspectives Paper: Mapping the Near Future: Macro Stress Scenarios for
2008-2009”, January 2008 (107173)
Moody’s Global Financial Risk Perspectives: Archaeology of the crisis, January 2008 (106824)
Spanish RMBS Q4 2007 Indices, April 2008 (SF128825)
Spanish structured finance: RMBS 2007 Review and 2008 Outlook, January 2008 (SF121002)
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.
29 October 2009 Banking System Outlook Moody’s Global Banking - Spain
Banking System Outlook Moody’s Global Banking
Spain
CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S (MIS) CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. © Copyright 2009, Moody’s Investors Service, Inc., and/or its licensors and affiliates (together, "MOODY'S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and MOODY’S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,400,000. Moody’s Corporation (MCO) and its wholly-owned credit rating agency subsidiary, Moody’s Investors Service (MIS), also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody’s website at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
Report Number: 120489
Authors Production Associate Pepa Mori Javier Rodriguez Antonio Garre
Sarah Warburton