Standard & Poor’s yesterday (Monday) cut the ratings of 15 Spanish banks, including Santander and BBVA, while Fitch downgraded BBVA, Bankia, CaixaBank and Santander, after they lowered their ratings of the sovereign last month.

S&P cut Spain to A, outlook negative, on 13 January. The rating agency’s revision of the Spanish bank ratings also follows a downgrade of its banking industry country risk assessment (BICRA) on Spain from group 4 to group 5, and of the industry risk score, a component of the BICRA, from 3 to 5.

Ten banks were downgraded by one notch because S&P lowered its assessment of the banks’ standalone credit profiles (SACPs) following the BICRA revision and because S&P changed what it referred to as the “anchor” it applies to banks operating primarily in Spain, from bbb to bbb-.

The anchor is based on the rating agency’s calculation of the weighted average of the economic risk scores of the countries where the bank operates and the industry risk score of the bank’s country of domicile.

Five banks had their ratings lowered by two notches following the revised SACPs and anchor, with S&P also changing the number of notches of uplift from the SACP incorporated in the ratings to reflect S&P’s view of the possibility of the banks receiving extraordinary government support.

The S&P rating actions include:

• Banco Santander, from AA- to A+
• Banco Español de Crédito (Banesto), from AA- to A+
• Santander UK, from AA- to A+
• Banco Bilbao Vizcaya Argentaria, from A+ to A
• Caixabank, from A to BBB+
• Caja de Ahorros y Pensiones de Barcelona, from BBB+ to BBB-
• Bankinter, from BBB+ BBB
• Banco de Sabadell, from BBB to BBB-
• Banco Popular Español, from BBB+ to BBB-
• Bankia, from BBB+ to BBB-
• Caja de Ahorros y Monte de Piedad de Gipuzkoa y San Sebastián, from BBB+ to BBB
• Kutxabank, newly created and assigned a BBB rating

Fitch downgraded: Banco Bilbao Vizcaya Argentaria (BBVA) from A+ to A; Bankia from A- to BBB+; Caixabank from A to A-; Caja de Ahorros y Pensiones de Barcelona (La Caixa) from A to A; and Santander, in a separate rating action, from AA- to A.

The downgrades reflect the close link between bank and sovereign credit risk (and therefore ratings) as Fitch noted it is unusual for banks to be rated above their domestic sovereigns.

Fitch said its downgrade of Spain, from AA- to A on 27 January, indicates a weakening of the country’s ability to support its largest banks. However, Fitch expected the Spanish authorities would continue to show a high propensity to support these institutions.

“Banks tend to own large portfolios of domestic sovereign debt and are highly exposed to domestic counterparties,” it said, “meaning profitability and asset quality are vulnerable to adverse macroeconomic and market trends.”

Funding access, stability, and cost for domestic banks are also often closely linked to broad perceptions of sovereign risk, according to Fitch. The rating agency expects no GDP growth for Spain in 2012 and 1% growth in 2013, for unemployment to remain high at around 23%, and for the real estate market to remain a long term cause for concern.

Fitch downgraded Santander’s support rating from 1 to 2 and revised its support rating floor (SRF) from A- to BBB+ following the sovereign downgrade.

“Santander’s profitability and asset quality in Spain will continue to be affected by the weak economic environment,” said Fitch. “However, concerns relating to the bank’s exposure to the stressed real estate sector in Spain are substantially mitigated as the bank will have reserved around 50% of the total exposure to the sector by end-2012”.

Strong contributions from the group’s international retail franchise, particularly Brazil, Mexico and Chile, should continue to help offset weak profitability in Spain and support the parent bank’s overall profitability to a greater degree than domestic banks can achieve, said the rating agency.

With a core capital to weighted risks ratio of 8.3% Fitch considers capitalisation to be adequate considering the group’s business mix and risk profile and in comparison with similarly rated peers.

Fitch also affirmed the A+ rating of Santander UK and said there is no impact on the covered bonds issued by Abbey National Treasury Services.

Santander UK’s rating continues to be driven by its standalone strength and does not factor in any support from its parent, said Fitch. Its rating reflects its “strong franchise in the UK, its solid asset quality, comfortable liquidity, and relatively strong capital ratios, but also factor in negative pressures on profitability from the macroeconomic, operating, and regulatory environment.”

Fitch also downgraded Santander’s subsidiary Banesto from AA- to A, reflecting an “extremely high probability of support from the parent and its strong integration”.