Madrid, June 12, 2018 — Moody’s has raised its outlook for Spain’s banking system to positive from stable, as robust economic growth and disposals of troubled assets help banks bolster their asset quality. In the rating agency’s view, other fundamental factors such as capital, funding and liquidity levels and profitability will remain stable.
Stocks of non-performing loans have been falling since peaking in January 2014 and Moody’s expects the improvement to continue over the 12 to 18 month outlook period.
Solid economic growth will support a stable operating environment. While Moody’s expects growth to slow to 2.7% in 2018 and 2.3% in 2019, Spain’s economy is still among the fastest growing in the euro area. This robust growth should extend a multi-year decline in unemployment and support improved credit conditions for Spanish banks.
Capital will remain stable at low levels for Spanish banks as their large volume of deferred tax assets, which Moody’s considers to be a low-quality form of capital, undermines their capital strength.
Moody’s forecasts that bank profitability will remain broadly stable over the next 12 to 18 months. Higher fee and commission income will compensate for declining net interest income, with revenues benefiting from more diverse earning sources. Moody’s also expects the cost of risk to remain broadly stable.
Funding and liquidity conditions will also be stable over the outlook period. Stable deposits and shrinking loan books have narrowed the funding gap at Spanish banks in recent years, though this process will decelerate as demand rises for credit.
Atlantic Investors Service 