The international ratings agency Fitch said today that it had downgraded another 18 Spanish banks.
This comes a day after cutting its ratings on the two biggest banks, Santander and BBVA despite a massive sector bailout.
Fitch cut Spain's sovereign debt rating by three notches last week to "BBB".
It said its latest downgrade of Spanish banks was the result of "the potential for the loan portfolios of certain banks to deteriorate further."
"This is particularly true for those banks whose loan books are heavily exposed to the construction and real estate sectors, and those with low equity bases," it added.
Among the 18 banks was CaixaBank, the third biggest Spanish bank in terms of market capitalisation, which was downgraded two notches to "BBB."
Bankia, which is to receive €23.5 billion in public aid, was cut one notch and is now also at "BBB."
Fitch said yesterday it had downgraded Santander and BBVA to "BBB+" from "A", placing them just three levels above junk territory but one notch above Spain itself.
On Saturday, Spain said it would seek up to €100 billion in European financial aid to underpin a fiancial sector that is weighed down by a huge number of risky property loans.
Euro zone finance ministers said they would approve the funds but financial markets are now wondering if new official creditors will take priority over private investors should Madrid in fact default on the international aid.
Meanwhile, any funds for Spain will be tied to reforms of its banking sector, German Chancellor Angela Merkel said today.
She added that the situation was different for previous bailouts of Portugal, Ireland or Greece.
"There will of course be conditionality for Spain, when the application comes, namely a restructuring of its own banking system to make it fit for the future," Merkel said.
She was talking to the economic council of her conservative party in Germany.
"But this conditionality is of course different from the conditionality in force when a whole country comes under the bailout fund with its entire economic programme," Merkel said.
At the weekend, Spain clinched a rescue loan of up €100 billionto come to the rescue of its embattled banking sector.
Amid some confusion as to the extent of European supervision for the aid, German Finance Minister Wolfgang Schaeuble confirmed that a "troika" of officials from European institutions and the International Monetary Fund would oversee reforms to the banking system required of Spain.
The difference with previous bailouts is that the troika would not be assessing the government's economic policies, as this bailout applies purely to the banking sector, Schaeuble explained.
