Ratings On Two Spanish Banks Raised, Most Affirmed On Receding Economic Risks

OVERVIEW Spanish banks, led by the large ones, have accelerated the reduction of problematic assets through sizable disposals, primarily of real estate assets. We expect the trend to continue, with the banking system stock of nonperforming assets reducing to 4.5% of loans by 2021. Macroeconomic conditions continue to support recovery in the profitability of the nonfinancial corporate sector, and massive deleveraging since the crisis has reduced corporate indebtedness to levels in line with European peers. Notwithstanding the current political situation, with a new government yet to be formed, we expect sound economic growth and positive labor dynamics to continue. Political fragmentation could constrain the ability of the new government to undertake reforms, however. We have improved our assessment of the

...May 31, 2019 OVERVIEW - Spanish banks, led by the large ones, have accelerated the reduction of problematic assets through sizable disposals, primarily of real estate assets. We expect the trend to continue, with the banking system stock of nonperforming assets reducing to 4.5% of loans by 2021. - Macroeconomic conditions continue to support recovery in the profitability of the nonfinancial corporate sector, and massive deleveraging since the crisis has reduced corporate indebtedness to levels in line with European peers. - Notwithstanding the current political situation, with a new government yet to be formed, we expect sound economic growth and positive labor dynamics to continue. Political fragmentation could constrain the ability of the new government to undertake reforms, however. - We have improved our assessment of the economic risks faced by Spanish banks, which in turn reinforces our view on the capacity of banks' capital to absorb unexpected losses. - Capital strengthening was...

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