It was among five Spanish banks downgraded by ratings agency Standard & Poor's (S&P) on Friday, a week after Moody's had also cut the ratings of major Spanish banks.
"The rating actions reflect our view of Bankia's weakened capital and risk positions, mitigated by our expectation that the bank will likely receive capital support from the state," S&P said as it downgraded Bankia and warned of possible further downgrades.
Nicholas Spiro, of Spiro Sovereign Strategy, said: "The financial rescue and restructuring of Bankia epitomize the failures of Spanish and euro zone policy-making. There have been repeated failures on the part of regulators and the government to tackle the balance sheet problems at Bankia head-on, partly because of continued resistance to injecting more public money into the banking sector but also because of the speed of the deterioration in the asset quality of the bank."
Now there are widespread reports that the government is thinking of making Bankia still bigger by turning it into a giant nationalized bank that would absorb several other failing cajas.
The addition of troubled Catalunya Caixa and Novagalicia, for example, would create Spain's biggest bank in terms of deposits – outgunning even the mighty Santander and BBVA.
The seven cajas that formed Bankia, many linked to the conservative People's party of prime minister Mariano Rajoy, had loaned heavily to developers for construction projects and building land that is now often worthless.
The parlous state of Bankia's books was exposed earlier this month when auditors refused to sign off on the accounts of its parent company BFA.
The board was last night expected to approve a reworking of the 2011 accounts, setting a lower valuation for Bankia and several other large companies in which it holds shares.
That will further anger 400,000 small shareholders who bought into the flotation in July and have seen their investment crash in value. Bankia shares were suspended on Friday but are due to trade again on Monday.
Spanish banks must now set aside an extra €82 billion against loans to developers which may never be repaid, but worries about mortgages and other potentially bad loans have led to predictions that Spain's banks need up to €100 billion more.
As Spain plunges back into recession on the back of government austerity and unemployment creeps close to 25%, markets worry that bank balance sheets will get much worse.
Rajoy has appealed for the European Central Bank to support Spain through difficult times, which it could do by buying its debt or loaning cheaply to its banks. He has also ordered an external audit of bank assets.
Analysts increasingly see Spain's banks needing a bailout from the European Stability Mechanism. French president François Hollande also believes that will be necessary, though the Spanish government continues to deny it.
Asked on Friday whether Spain would seek outside help, Deputy Prime Minister Soraya Saénz de Santamaría, said: "Not at all."
Another worry is the Spanish sovereign debt now piling up at the country's banks, as a circular support system evolves in which banks lend money to the state and the state borrows money to bail out banks.
Spanish banks held €146 billion of national debt in April, or 30% of the total, up from 13% a year ago.
Intellpuke: You can read this article by Guardian correspondent Giles Tremlett, reporting from Madrid, Spain, in context here: www.guardian.co.uk/world/2012/may/25/spain-bank-restructuring-bailout-bankia