DBRS downgraded cédulas hipotecarias of Banco Popular Español and subsidiary Banco Pastor from AA to AA (low) on Friday – its second cut to the cédulas this year – following a downgrade of the parent on the back of increasing concerns about its capital position, after it announced revised 2016 results.

The downgrades come after DBRS on 6 April downgraded Banco Popular Español, cutting its senior unsecured rating from BBB to BBB (low) and its Critical Obligations Rating (COR) from A (low) to BBB (high). The trend on the senior rating remains negative and the trend on the COR is now also negative.

On the same day, it cut the senior rating and COR of Popular’s subsidiary Banco Pastor, also to BBB (low) and BBB (high), respectively.

The CORs of Popular and Pastor are the Covered Bonds Attachment Points (CBAPs) for the issuers.

The downgrades to Banco Popular Español’s senior rating and COR reflect DBRS’s “increasing concerns” over Banco Popular Español’s weakened capital position, after the Spanish bank announced on 3 April that an internal audit had uncovered a shortfall of provisions associated with specific exposures, necessitating a revision of its 2016 results that will affect its capital.

DBRS had previously cut the Spanish bank’s ratings in February on the back of higher than anticipated losses in the results and its challenges in facing non-performing assets.

“The pressure on capital had been a key driver for the downgrade and negative trend placed on Popular’s senior ratings in February following the announcement of a sizeable loss in 2016,” said DBRS. “As a result of the most recent announcements, Popular’s capital position will materially weaken to levels that are approaching its regulatory minimums.”

According to Popular, the revisions would leave it with a total capital ratio of between 11.7% and 11.85% as at end-March 2017, and DBRS said this leaves only limited flexibility and very low capital buffers over the minimum regulatory requirements.

“In DBRS’s view the bank is vulnerable to the impact from any further adverse events and this makes it more challenging to significantly reduce its high stock of NPAs,” said the rating agency. “The new management seems to be willing to make considerable changes to the bank, however the benefit of some of those changes may take time to materialise, and DBRS considers the immediate priority is for the bank to restore its capital position.

“The negative trend reflects the fact that should capital levels not be restored in the short term, there could be additional downward pressure on the ratings.”

On Friday, DBRS also confirmed its BBB (low) rating on the obrigações hipotecárias (OH) of Banco Popular Portugal.