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Standard & Poor review outlook on Spain

Wed 9th Nov 2011

Today Standard & Poor's Ratings Services said it is keeping it's Banking Industry Country Risk Assessment (BICRA) for Spain at group 4, and increasing the economic risk rating from 4 to 5, whilst assigning an industry risk score of 3.

BICRA evaluates and compares global banking systems, and for a country covers rated and unrated financial institutions that take deposits, extend credit, or engage in both activities. A BICRA is scored on a scale from 1 to 10, ranging from Standard & Poor's view of the lowest-risk banking systems (group 1) to the highest-risk (group 10). Other countries in BICRA group '4' include Slovakia, Czech Republic, Israel, Brazil, Mexico, Taiwan, and South Africa.

The economic risk score of 4 has been given based on opinions that Spain has "intermediate risk" in "economic resilience," "high risk" in "economic imbalances," and "intermediate risk" in "credit risk in the economy," as our criteria define those terms.

Although S&P acknowledged that Spanish banks operate in a large and wealthy economy with low political risk, the economy's medium-term growth prospects were viewed as being "modest", due largely to high unemployment and weak external financing.

S&P also noted that Spain's banking system is reliant on foreign funding, though, which is threatened by changes in investor confidence.

The ratings agency viewed the Spanish government as being supportive of domestic banking activities, and recognise the recent measures taken strengthen the sector.

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