On Monday, the France based credit ratings agency, Fitch downgraded the ratings of four top banks in Spain, while the American rating agency, Standard & Poor cut the rating of the Spanish industry as a whole.

S&P on January 13 lowered Spain’s sovereign rating to A from AA- and the subsequent revision of its Banking Industry Country Risk Assessment (BICRA) to group 5 from group 4.

The rating agency said that they believe investor confidence remains weak and expect further episodes of illiquidity and instability in the funding markets over the medium term, adding that the banking system of Spain is at risk to turbulent capital markets because it depends, to a degree, on foreign funding.

It added that the system was benefitting from support from Spanish and European authorities, particularly the ECB (European Central Bank) liquidity program.

Most of the economists said that the country is widely thought to have already entered its second downturn since the end of 2010, and the country’s unemployment is more than twice the European Union average while virtual credits freeze by banks, ordered to raise capital further shambles the economy.

Fitch said that the downgrade of Spain shows a weakening of its ability to support its largest banks but they expect that the Spanish government will continue to show a high tendency to support these institutions. The agency said that no GDP growth for Spain in 2012 and only 1% growth next year, for unemployment to remain at a high of nearly 23%, and for the property sector to remain a long-term cause for concern.

The new government of the country has told the Spanish banking sector that it must recognize and deal with an extra $65 billion in asset losses in an effort to clean lenders’ balance sheets.

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