IANS/EFE | 14 Feb, 2012

Fitch Ratings, which downgraded Spanish sovereign debt a month ago, said Monday it lowered its credit rating of Spain's four largest lenders.

"Fitch believes there is a close link between bank and sovereign credit risk (and therefore ratings) and, it is unusual for banks to be rated above their domestic sovereigns," the agency said in a statement.

Santander, Spain's largest financial institution and the euro zone's biggest bank by market capitalization, was cut two notches to A.

Fitch reduced its ratings for BBVA, Bankia and CaixaBank by one notch, to A, BBB+, and A-, respectively.

"Banks tend to own large portfolios of domestic sovereign debt and are highly exposed to domestic counterparties, meaning profitability and asset quality are vulnerable to adverse macroeconomic and market trends," Fitch said in explaining the downgrades.

Fitch said it expects Spanish gross domestic product to contract this year and grow by only around 1 percent in 2013 and that the country's jobless rate will continue to hover around 23 percent.

Both Santander and BBVA, Spain's No. 2 bank, can rely on profitable operations in the Americas to "mitigate" the negative effect of economic woes in the European nation, the rating agency said.

The Spanish government introduced earlier this month a programme giving the country's weakest banks four months to present merger plans and a year for the entire sector to boost by 50 billion euros ($65.5 billion) the provisions against losses from the bursting of a decade-long construction and property boom.