Moody’s today (Tuesday) revised the outlook from negative to stable on the long term senior debt ratings of Spain’s two largest banks, Banco Santander and Banco Bilbao Vizcaya Argentina (BBVA), reflecting its view that Spain is undergoing gradual economic recovery.

The rating agency also affirmed Santander’s and BBVA’s ratings, at Baa2 and Baa3, respectively.

As a result of an improving economy in Spain Moody’s considers that downside risks to BBVA and Santander have substantially diminished. Gross non-performing loans (NPLs) at BBVA have stabilised with the formation of new NPLs decreasing, it noted. The rating agency said that this could create positive momentum for the bank’s credit rating should the economic upturn in Spain continue.

Moody’s concern over ongoing negative asset quality trends at Santander have lessened due to the bank diversifying its earnings sources, as well as Santander’s improved capitalisation levels and ability to generate capital in times of stress.