14 Oct 2011

Spain, banks get credit downgrades

8:17 pm on 14 October 2011

Rating agency Standard Poor's has downgraded the long-term credit rating of Spain by one notch, from AA to AA-.

It said the downgrade reflected concerns at the country's weak growth and high levels of private sector growth.

Standard Poor's also noted that Spain's high unemployment would remain a drag on the economy and noted there was a further risk to the Spanish economy in the deteriorating conditions in the country's main trading partners.

It noted the incomplete state of labour market reform, and added: The financial profile of the Spanish banking system will, in our opinion, weaken further.

Fitch subject Spain to a similar downgrade on 7 October.

The BBC reports that news of the latest downgrade saw the euro drift lower in Asian trade, although the currency was still on track for its biggest weekly rally since January 2011.

The euro traded at $1.3741, having lost about a third of cent.

Standard Poor's move comes as G20 finance ministers prepare to meet on Friday to discuss the eurozone crisis.

Earlier on Thursday, On Thursday, Fitch downgraded the creditworthiness of UK banks Lloyds and Royal Bank of Scotland (RBS) as well as Switzerland's largest bank, UBS.

It also signalled possible downgrades for other major European banks Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, and Societe Generale.

The Euro crisis and the challenges of a volatile market are cited as reasons for reconsidering the banks' credit grade.

According to the BBC, another factor may be the perception that banks may be less safe to lend to as governments appear increasingly wary of bailing them out when things go wrong.