Ratings agency Fitch downgraded the ratings of Spain’s fourth-biggest bank, Banco Sabadell, by a notch yesterday owing to its exposure to the collapsed real estate market and weak economy.

The agency said it had trimmed the Barcelona-based bank’s long-term debt rating to “A-” from “A” with a negative outlook.

“The vast majority of Sabadell’s activities are undertaken in Spain and thus its performance is highly correlated with that of the Spanish economy, which has uncertain growth prospects and has suffered from the collapse of the property sector,” Fitch said in a statement.

Banco Sabadell’s exposure to the real estate sector totalled €10.8 billion, and repossessed properties totalled €3.1 billion, at the end of the first quarter of 2011, according to Fitch.

The bank’s profitability “has held up relatively well”, helped by good cost control, a healthy level of commissions and its focus on small and medium-sized firms, it said.

“However, sharp deterioration in asset quality since 2008 led to large loan impairment and other charges, the latter mainly for foreclosed assets, affecting operating profitability and net income,” Fitch added.

Investors fret over the state of Spanish banks, hard hit by the collapse of property bubble in 2008, an ensuing recession and a steep rise in the cost of raising money on financial markets in past months.

The government and Bank of Spain have forced a wave of consolidation in the sector and are requiring banks to quickly increase the proportion of rock-solid core capital they hold to above international norms.

Spanish banks’ bad loans amounted to €115.35 billion or 6.36 per cent of total assets, in April – the highest ratio since June 1995, the central bank said in a report released earlier this month.