The EUR 100 billion bank recapitalization facility for Spanish banks covers a housing market collapse on a par with that seen in Ireland and is at the extreme end of the stress estimates, Fitch Ratings said Monday.
The agency said it estimated the Spanish bank recapitalization to total approximately EUR 60 billion, when it had downgraded the country's sovereign to 'BBB'/Negative last week.
If Spain uses EUR 60 billion of the bailout fund, it will put Spain's gross general government debt on a trajectory to peak at 95 percent of GDP in 2015, Fitch said.
The agency pointed out that the recourse to external funding for the bank recapitalization underscores the constrained financing flexibility of the sovereign to respond to adverse shocks.
That said, securing low-cost and long-duration funding from European partners to assist in restructuring the Spanish banking sector is consistent with Spain's current sovereign rating, it added.
"If effective in restoring confidence in the banking sector and easing the fiscal burden of restructuring, such support would be credit positive," Fitch said in a statement.
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