DBRS Confirms CaixaBank’s Senior Ratings at A (low), Stable Trend

DBRS Ratings Limited (DBRS) has confirmed the ratings of CaixaBank S.A. (CaixaBank or the Bank), including the Long-Term Issuer Rating of A (low) and the Short-Term Issuer rating of R-1 (low). Concurrently DBRS confirmed the Bank’s Long-Term Critical Obligations Rating (COR) at A (high) and Short-Term COR at R-1 (middle), as well as its Senior Non-Preferred Debt and Subordinated Debt at BBB (high) and BBB, respectively. All ratings have a Stable Trend. The Bank’s Intrinsic Assessment (IA) is confirmed at A (low) and the Support Assessment remains at SA3. See the full list of ratings in the table at the end of this press release.

The confirmation of CaixaBank’s ratings reflect the Bank’s solid and improved core revenue generation, strengthened capital position and improving asset quality. It also recognises CaixaBank’s sound funding and liquidity position but notes that the asset quality, albeit significantly improved in recent years, remains weaker than comparable European peers. The rating action also takes into account DBRS’s expectations that given its strong banking franchise in Spain, CaixaBank should continue to achieve further progress in profitability and risk profile as the economic environment and sovereign position further improves.

DBRS considers CaixaBank’s profitability has significantly improved in recent years with reported net attributable income of EUR 1,684 million in 2017, up 61% Year-on-Year (YoY). This improvement was driven by sustained growth of core revenues in Spain and lower impairments, as well as by the integration of Banco BPI in February 2017. DBRS notes that the significant growth in core revenues in Spain, up 5.5% YoY, reflected the strong growth of commissions and significantly lower funding costs. The cost of risk in Spain also improved further, to 39 bps in 2017 from 46 bps in 2016 and the return on equity (ROE) reached 6.8% in 2017, up from 4.4% in 2016 (as calculated by DBRS).

The Bank continued to reduce its stock of Non-performing assets (NPAs) YoY, partly helped by the improving economic and real estate market conditions in Spain. Excluding around EUR 1.2 billion of NPAs from Banco BPI, Caixabank reduced YoY its stock of NPAs in Spain by 11% during 2017. CaixaBank’s total NPAs (Non-performing loans and FAs) totaled EUR 27.9 billion at end-2017, representing around 11.8% of loans and FAs at that date. The NPL ratio for the Group was 6.2% at end-2017 (as calculated by DBRS). NPA coverage levels (including debt cancelled at the foreclosure of real estate assets) are in line with the average of the system at 53%, and expected to improve to 56.7% after the implementation of IFRS 9 from January 1st 2018.

Caixabank’s funding is underpinned by its franchise position in Spain where the bank has maintained one of the largest market shares for deposits (2017: 14.2%). DBRS considers that CaixaBank’s funding profile has not been materially impacted by the political environment in Catalonia and that customer and investor confidence have remained broadly stable, partly because the Bank took the step to move its registered offices outside Catalonia. Deposits were down by EUR 3 billion (or 1.6%) in 4Q17 Quarter-on-Quarter, reflecting volatility that arose in the weeks after the Catalan vote as well as some movement of on-balance sheet funds to off-balance sheet products. However, DBRS notes that customer deposits in Spain still grew overall by 1.2% in 2017.

DBRS views CaixaBank’s capital position as sound, especially in the context of the Bank’s solid ability to generate capital internally through retained earnings and improved access to capital markets. In DBRS’s view, the latter should help Caixabank to meet increasing regulatory requirements. The Group’s fully loaded CET1 capital ratio stood at 11.7% at end-2017, albeit the ratio was slightly down from 12.4% at end-2016, negatively affected by the acquisition of Banco BPI. DBRS considers that Caixabank has been able to maintain large buffers over its minimum regulatory requirements of 8.063% for CET1 and 11.563% for Total capital.

RATING DRIVERS
The rating is currently at the same level as the sovereign rating, consequently positive pressure to the Long-term issuer rating would require an improvement in the Spanish sovereign rating, as well as further progress in the risk profile and domestic profitability.

Negative pressure to the Long-term issuer rating, although unlikely in the short to medium term, would arise from a material deterioration of asset quality and any signs that the Bank’s franchise is weakening.

The Grid Summary Grades for CaixaBank S.A. are as follows: Franchise Strength – Strong; Earnings – Good; Risk Profile – Good/Moderate; Funding & Liquidity – Strong/Good; Capitalisation – Strong/Good.

Notes:

All figures are in Euros unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). This can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company documents, SNL Financial and European Banking Authority. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Maria Rivas, Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of EU FIG
Initial Rating Date: March 4, 2013
Most Recent Rating Update: July 14, 2017

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom
Registered in England and Wales: No. 7139960

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.