Despite the collapse of the housing sector, the decline in the profitability of Spanish debt and lack of credibility on the economy, the BBVA and Santander banks rank in the top four most creditworthy of the 50 largest banks in Europe. The author of the report is the credit rating agency Standard & Poor’s (S&P), which puts the Spanish companies behind the Dutch Rabobank and the British-Hong Kong HSBC.
S&P gave the good news to the two largest Spanish banks this week (both who had seen stock market falls again of close to 2%). The agency stressed that BBVA has weathered the global financial and economic crisis well, and they expect the financial profile of Santander to withstand the test of market turmoil. On this list of European banks, Caixabank ranked at number 12, with a stable outlook, while Banco Sabadell ranked at 34, with Bankia and Popular ranking at numbers 40 and 41, respectively.
However, El Pais reported that the S&P outlook for the banking sector is far from positive. As before, it’s a vicious circle: the decline of the economy leads to lack of investor confidence, which translates into a cut in market funding and the lack of credit hampers the recovery from lack of credit to businesses.
To make matters worse, S&P believes there will be no recovery in Europe until the banking sector recovers, which at the moment seems “stalled”. “If the euro zone falls back into recession, we expect that credit losses will rise again. The magnitude of the losses would depend on the depth and duration of the relapse,” the agency said in a report on the European banking sector released on Tuesday. They pointed out that “if the second recession was of the same magnitude as that of 2008-2009, the credit losses could exceed those experienced then,” because the organisations that have undergone restructuring are still in a weakened state. That is, the sector may experience a second and worse Lehman Brothers situation.
The outlook for European banks is weak for the remainder of 2011 and 2012, despite the improvement in the financial profiles of most banks after the impact of the recession and financial crisis, says S&P. They believe that the banking sector’s recovery will depend on “restoring order in the sovereign debt markets, growing the confidence in interbank markets and avoiding a second recession in Europe.”
Moreover, on Tuesday officials from the Ministries of Economy of the EU discussed ways in which governments can inject money into struggling banks, said an EU source.