Moody’s Investors Service zeroed-in on several members of Hato Rey’s Golden mile Tuesday, placing on review for downgrade certain ratings of three Puerto Rican banks, including Banco Santander Puerto Rico, Banco Bilbao Vizcaya Argentaria Puerto Rico and Popular Inc.
The actions announced late Tuesday reflect the adverse effects of Puerto Rico’s ongoing recession on the island’s banks, as well as the weak prospects for a sustainable recovery in the coming years, Moody’s said.
In its analysis, Moody’s placed Santander’s bank financial strength rating, or BFSR, of C- on review for possible downgrade to ‘baa1’ on the long-term scale, BBVA’s standalone BFSR of C-, which maps to baa2 on the long-term scale, and the long- and short-term ratings of Popular, Inc. and its subsidiaries, including Banco Popular de Puerto Rico’s standalone BFSR of D+, which maps to baa3 on the long-term scale.
This is the second time this year that Santander’s and BBVA’s long-term ratings come under scrutiny, as Moody’s placed them on review on Feb. 22, “reflecting the potential adverse effects of any weakening of their Spanish parents on their capacity and/or willingness to support their North American subsidiaries,” the New York-based ratings agency said.
In a statement, Moody’s said the rating reviews of the three banks are “driven by the island’s difficult operating environment.”
“Puerto Rico is in the midst of a deep, protracted recession that began in 2006. Although some signs of stabilization have emerged recently, the prospects for a sustainable recovery are constrained by the commonwealth’s poor finances, which are characterized by severely underfunded retirement systems and an increasingly heavy debt load,” Moody’s noted. “Actions to address these issues in the coming years will likely put additional stress on Puerto Rico’s already weak economy.”
Moody’s added that the weak operating environment, which is characterized by high unemployment and depressed real estate values, continues to threaten banks’ asset quality.
The banks’ problem assets remain extremely high and could lead to significant losses if the recession continues, the agency said.
Ultimately, Moody’s said the banks’ standalone baseline credit assessments could be downgraded by one or two notches. The agency expects to conclude its review of the two Spanish banks by the end of the month, when a decision should be made public.
Meanwhile, Moody’s affirmed Tuesday FirstBank Puerto Rico’s standalone BFSR of E+, which maps to B2 on the long-term scale, and Doral Financial Corporation’s senior unsecured debt at Caa1.