BANKING

Moody’s reduces the outlook for Spanish banking sector

The decision comes less than a week after Spain’s six major lenders easily passed EU stress tests

Moody's has reduced the outlook for the Spanish banking sector.
Moody's has reduced the outlook for the Spanish banking sector.EFE

Moody’s has reduced the outlook for Spanish banks from “positive” to “stable” as a result of the “growing challenges” threatening their profitability.

The ratings agency notes that while “the benefits of Spain’s healthy economy are helping to reduce the Spanish banks’ problem loans […], persistently low interest rates and deleveraging are eroding pre-provision earnings, and banks have few prospects to increase loan pricing in a very competitive lending environment.”

GDP growth in the first quarter of the year was more cyclical than structural, says the report

The decision comes less than a week after Spain’s six major banks easily passed the stress tests administered by the European Banking Authority to 51 lenders across the continent.

In a report about the solvency of Spanish banks with a view to 2017, Moody’s acknowledges that Spain’s “solid” economic growth and improved-quality assets will boost the banking sector.

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The report describes Spain’s GDP growth in the first quarter of 2016 as “robust” but considers it to be more cyclical than structural, and based on elements such as low oil prices, better financing conditions and the growth of tourism. But this inertia will eventually lose traction.

Moody’s expects Spanish GDP to end the year at 2.9% and drop to 2% by 2017.

English version by Susana Urra.

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