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Moody's downgrades the outlook on the ratings of Bankia, Liberbank, Abanca and Ibercaja

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The credit rating agency Moody's has lowered the outlook on the rating of Bankia, Liberbank, Abanca and Ibercaja for the negative impact of the Covid-19 pandemic on the Spanish economy.

The discounts reflect the deterioration of the operating environment of the coronavirus outbreak in Spain and the downside risks associated with the independent credit profiles of Bankia, Liberbank and Abanca, as well as limited upside potential for Ibercaja.

Moody's has cut the outlook on the rating of Bankia and Liberbank from stable to negative and of Abanca and Ibercaja from stable to positive. The agency anticipates a decline in asset quality "despite the great support package established by the Spanish government, as well as the supervisory measures decided by the European Central Bank (ECB)"

The rating agency expects a increase in problem loans and the cost of risk in homes and businesses to deal with a sudden change in economic circumstances. This will cause a deterioration in profitability.

So the results will probably be under pressure. "due to the increase in provisions for credit losses, the lower business volumes related to loans and commissions; and the continuous pressure on the margins as very low interest rates persist. "

Moody's expects that the increase in bad loan provisions is greater the longer the coronavirus outbreak lasts and also that Spanish banks have a limited capacity to counter cost cuts, with some margin to reduce non-essential investment.

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