S&P Global Ratings on April 7 downgraded Banco Popular Español SA's long-term counterparty credit rating to B from B+, with the outlook revised to negative from stable.
The agency affirmed the bank's short-term counterparty credit rating at B.
The downgrade comes after the bank announced additional provisions and regulatory capital adjustments that will reduce its total capital ratio by a range of 48 basic points to 63 basis points to an estimated 11.70% to 11.85% as of March-end, compared to the 11.375% supervisory review and evaluation process requirement. Also, the bank's CEO, Pedro Larena, is leaving the bank for personal reasons.
The agency estimates that such adjustments will result in the bank operating with a risk-adjusted capital ratio of 4.75% to 5.0% by the end of 2017. Consequently, S&P assesses Banco Popular's capital position as "weak" instead of "moderate," leading it to revise the bank's stand-alone credit profile to "b" from "b+."
The adjustments total an initial estimated gross amount of €549 million and follow an internal audit conducted by the bank. S&P believes there is uncertainty over the possibility of additional future charges, because certain adjustments are based on currently available information.
Meanwhile, the rating agency said that Banco Popular's ability to generate capital organically is limited, as is its financial flexibility. Further capital might be required in order for Banco Popular to reinforce its provisions coverage of problematic assets and to comply with regulatory capital ratios, S&P noted.
The negative outlook reflects certain factors that may lead to a further downgrade, including a failure to show tangible progress in turning things around and a drop in risk-adjusted capital ratio below 4%.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.