Moody's downgrades 3 Spanish banks

Moody’s Investors Service has downgraded three nationalized Spanish banking groups in a move that sends their debt deeper into junk bond territory.

The credit ratings agency cut its ratings of Bankia, Catalunya Banc and NovaCaixaGalicia due to their Å“very weak” asset quality, poor profits as well as the major challenges they have met in decreasing debt, shutting down branches and slashing staff numbers.

The New York-based agency axed the rating of Bankia by two notches to B1 from Ba2. The two other banking groups also tumbled two notches to B3 from B1.

Moodyâ„¢s also assigned a negative outlook to the banks which means they might be downgraded again in the medium term.

In a statement released late Tuesday, Moody’s said that it had taken into account the Spanish governmentâ„¢s large degree of support to the banks, adding that it believed Madrid would find itself Å“increasingly constrained” if it sought to offer more support to Spanish banks.

In 2012, the European Union agreed to provide Spain’s banks with a rescue of up to 100 billion euros. The country has drawn more than 41 billion euros from the European credit line so far.

The eurozone’s fourth-largest economy nationalized four of the weakest banks Bankia, Catalunya Banc, NovaCaixaGalicia and Banco de Valencia.

The government of Spanish Prime Minister Mariano Rajoy has significantly slashed spending to reduce the budget deficit from nearly seven percent of gross domestic product (GDP) in 2012 to below the EU limit of three percent by 2016.

Meanwhile on June 19, the International Monetary Fund (IMF) said in a statement that austerity measures are required but should be Å“as gradual and growth-friendly as possible.”

MR/KA