Ratings agency Moody's Investors Service has downgraded the credit ratings of 16 Spanish banks - including the country's largest financial institutions, Banco Santander and Banco Bilbao Vizcaya Argentaria - by between one and three notches.

Moody's justified Thursday's cuts by citing the banks' adverse operating conditions, rapid deterioration of asset quality - "as non-performing loans to real-estate companies are rising fast" - and restricted access to capital markets as a result of the eurozone debt crisis, as well as the Iberian nation's reduced credit-worthiness.

Among the adverse operating conditions, the credit risk rater cited Spain's relapse into recession, the country's long-standing real-estate crisis and persistent high levels of unemployment, as well as Madrid's difficulty in accessing credit, which limits the extent of government support expected to be made available to banks.

"We believe the Spanish government's ability to support its banks' debt and deposit ratings is consistent with the level implied by the sovereign's debt rating, currently A3. That is, the Spanish government is unlikely to choose to prioritize its available funds to provide capital for banks over paying its own sovereign debt investors," Moody's said.

Besides Santander and BBVA, the other banks affected by the downgrade were Unicaja Banco, CaixaBank, Caja Rural de Navarra, Banco Español de Credito, Banco Popular Español, Caja de Ahorros y Pensiones de Barcelona, Banco Sabadell, Banco Cooperativo Español, Bankinter, Confederacion Española de Cajas de Ahorro (CECA), Caja Rural de Granada, Liberbank, Cajamar Caja Rural and Lico Leasing.

Banco Santander and BBVA were among five banks downgraded to A3.

The ratings agency recognized "some positive factors" that mitigated the magnitude of the ratings actions, including "the strengthening risk-absorption capacity of banks, underpinned by stricter capital and provisioning requirements" and "liquidity support from the European Central Bank."

It also mentioned capital support from the Spanish government as a mitigating factor but said those positive factors were "overwhelmed by mounting asset-quality challenges that weaken the earnings and threaten the capital of many banks."

The downgrades came three days after Moody's lowered the credit ratings of 26 Italian banks by between one and four notches, citing their "susceptibility to the adverse operating environments in Italy and Europe."

Also Thursday, Moody's downgraded the credit ratings of four Spanish autonomous communities - Catalonia, Murcia, Andalusia and Extremadura.

The ratings agency cited their "poor fiscal performance in 2011 and the low probability that the regional governments will be able to meet the 2012 deficit target set by the central government."

Catalonia and Murcia were downgraded to Ba1, or "speculative grade," while Andalusia and Extremadura retained their "investment grade" credit rating despite the cut.

On April 30, Standard & Poor's downgraded the credit ratings of 11 Spanish banks after cutting the country's debt rating by two notches days before, while Fitch downgraded the credit ratings of Banco Santander, BBVA, CaixaBank and since-partially nationalized Bankia on Feb. 13.

Spanish banks are saddled with bad assets stemming from the collapse of a long construction and property boom that had made the country's economy the envy of most of Madrid's European partners.

The devastation in Spain's real-estate sector has had deep repercussions throughout the economy and contributed to a unemployment rate this currently stands at more than 24 percent, representing more than 5 million people out of work.

Nearly half of Spaniards under 25 are jobless and tens of thousands of families have been evicted from their homes after falling behind on their mortgages.

Anger over persistent high and rising unemployment played a major role in the conservative Popular Party's landslide victory over the incumbent Socialists in last November's elections.