Moody’s Investors Service Inc has placed several Spanish banks and lender holding companies under review for a possible ratings downgrade, citing heightened concerns over possible real estate-related losses and prospects for weak earnings growth.
Monday’s move comes after the ratings agency completed an assessment of the financial strength of all Spanish banks.
Moody’s said it expects the sector will see higher losses because of its exposure to commercial real estate and its reduced prospects for earnings because of the diminished growth outlook for the Spanish economy.
Moody’s has reduced its forecast for Spanish GDP growth next year to 1 percent, down from about 2 percent.
And it expects that will constrain bank profits and weigh on real estate assets.
The non-performance rate for real estate loans in Spain has exceeded levels reached in the early 1990s and continues to rise with no signs of abating, Moody’s said.
Rising foreclosures have led to banks taking back an increasing number of properties, but Moody’s has significant doubts as to whether the lenders are adequately accounting on their balance sheets for the declining value of the properties.
The ratings firm notes that real estate values have been declining since 2008 and sales activity for some types of commercial property has been too low to establish credible price benchmarks.
Most of the banks placed under review would experience capital shortfalls under various scenarios calling for further declines in the value of commercial real estate, Moody’s said.