(Adds details, background)
By Fiona Ortiz
MADRID, Dec 15 (Reuters) - Standard & Poor's cut the
credit ratings of 10 Spanish banks on Thursday and said they
remained on watch for a possible further cut subject to a review
of Spain's sovereign rating.
The banks include Bankia and its holding company,
Caixabank MC> and its holding company, Ibercaja, Bankinter
, Sabadell and Popular.
S&P said the cut came after it applied new ratings criteria
and updated its group methodology for banks. The criteria were
changed in November to increase clarity regarding hybrid capital
instruments.
Spanish banks are heavily exposed to bad, and
potentially bad, loans after a prolonged housing bubble burst in
2007, and risks remain even after prolonged restructuring and
recapitalisation.
The economy is stagnant, the banks are depending
on the European Central Bank for liquidity, and many of them
must raise more capital as well.
The incoming government of centre-right leader
Mariano Rajoy -- due to be sworn in as prime minister on
Wednesday -- is planning a fresh overhaul of the banking sector,
possibly creating a holding company for toxic real estate
assets.
S&P this month put sovereign debt from the entire euro zone
currency bloc on review for possible downgrades due to the
deepening economic and credit crisis in the region.
The agency said on Thursday that within four weeks of
deciding on whether or not to downgrade Spain's government debt,
it will announce decisions on possible further cuts in the
ratings of Spanish banks that are on review.
Spain's sovereign debt is currently rated AA- by S&P, an
investment grade that indicates a "very strong payment
capacity".
(Reporting By Fiona Ortiz; Editing by Will Waterman and David
Hulmes)