Fitch Ratings cut Spain's long-term credit rating to BBB and left it two notches from junk, citing the cost of recapitalizing the country's banking industry and a lengthening recession.

Spain, which saw its rating lowered from A, may need as much as 100 billion euros ($126 billion) to bolster its banking system, compared with an earlier estimate of about 30 billion euros, Fitch said today in London. The Spanish economy is set to remain in recession through 2013, the ratings company added, having previously forecast a recovery for next year.

“The much reduced financing flexibility of the Spanish government is constraining its ability to intervene decisively in the restructuring of the banking sector and has increased the likelihood of external financial support,” Fitch said in a statement. “Spain's high level of foreign indebtedness has rendered it especially vulnerable to contagion from the ongoing crisis in Greece.”