Fitch predicts M&A in Spanish financial sector

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According to Fitch, small-sized Spanish banks are likely to face downward rating pressure in 2012 as the potential for losses grows, prompting them to merge.

Corporate activity in Spain could carry a negative impact for the stronger institutions that merge with weaker institutions. The potential weakening of their risk profile, additional provisioning and capital needs and execution risks could trigger downward rating pressure, Fitch said.

According to Bank of Spain data, total exposure to the real estate sector for the entire banking sector at end-June 2011 was around €323m, of which €175m were potentially problematic.

The new requirements will bring coverage for the entire real estate portfolio to around 30%, which Fitch views as a more appropriate level for the higher risk profile of these assets.

In February Fitch said it expected no GDP growth for Spain in 2012 and 1% growth 2013, for unemployment to remain high at around 23% and for the real estate market to remain a long-term cause for concern.

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