Moody's Sees Threat To

 Spanish Bank's Debt Ratings

LONDON (MNI) - Delays in consolidation and restructuring in the Spanish financial sector, combined with the low amount of public funds that have flowed into the sector, are threatening earlier expectations of a material improvement in the financial strength of the country's banks, Moody's Investors Service says in a new Special Comment out today.
In a media statement, Moody's said:
"Persistent delays and uncertainties in this respect could exert pressure on the debt and deposit ratings of certain institutions, chiefly those with weaker standalone financial strength, if they fail to improve their credit profiles," Moody's warns.

"Moody's stated view since mid-2009 has been that Spanish banks' debt and deposit ratings should prove relatively stable as future credit losses -- especially for those institutions with lower bank financial strength ratings (BFSRs) -- would be mitigated not only by state-backed capital injections but also by the expected benefits of upcoming consolidation in the form of mergers and other integrations. The rating agency has anticipated that these developments would put these institutions on a sounder, more competitive footing again -- a view that was further reinforced after the creation of the Fund for Orderly Bank Restructuring in late June 2009.

"To date, the pace of consolidation and restructuring has been much slower than we had anticipated, as has been the flow of public funds into Spain's financial sector. We are concerned that -- so far -- no significant progress in this respect has been made," observes Maria Jose Mori, a Moody's Assistant Vice-President--Analyst and author of the report.

"The Bank of Spain's stated intention to conclude the system's restructuring by the end of the first half of 2010 provides some comfort, but Moody's retains a cautious view with regard to the prospects for an effective strengthening of the system's financial fundamentals in the coming months. This view reflects in particular the role played by political powers in approving any merger or integration project between savings banks, which is a key factor behind the sluggish consolidation in this segment, while the very weak operating environment in Spain continues to put pressure on the sector's financial fundamentals".