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Spanish banks' ratings outlook positive for 2017, Fitch says

The outlook for Spanish bank ratings in 2017 is positive, with improving asset quality trends supported by an economic recovery, according to Fitch Ratings.

The rating agency said Dec. 13 that it expects nonperforming loan volumes to decline further, supported by domestic economic growth and a gradual decrease in unemployment. There is decreased political uncertainty in the country following the establishment of a new government in October, providing a more favorable environment for asset disposals.

"Lower loan impairment charges will be the main cushion for operating profits," Fitch said, noting that these are expected to decrease in 2017 even when considering the new provisioning rules to be implemented by the Spanish central bank in the fourth quarter of 2016.

Fitch said core capital levels for Spanish banks will generally be stable in 2017, although lenders will probably issue subordinated instruments to increase loss-absorbing buffers and total capital ratios.