The recapitalisation of Spanish banks is credit positive for Spain but may be 'insufficient', according to a credit outlook report published by Moody's on Monday.

The financial press has been speculating about a possible rating downgrade by Moody's because its review period has just ended following the latest stress test results on Spain's banks. The US rating agency asserted that the recapitalisation would enhance the solvency of affected banks although the amount announced by Spain is less than it thinks is needed.

Regardless, negative market sentiment could undercut government efforts to restore confidence in Spanish banks, says Moody's.

A big test will be how well the government can attract independent investors to its bad bank.

Moody's said: "Past efforts to attract private capital to bad banks have failed because investors expect assets to be transferred at a price that would allow for near-term disposition with a reasonable return."

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