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

DBRS Ratings Limited (DBRS) has confirmed the ratings of Bankinter, S.A. (Bankinter or the Bank), including the Long-Term Issuer Rating of A (low) and the Short-Term Issuer Rating of R-1 (low). 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.

KEY RATING CONSIDERATIONS

The confirmation of Bankinter’s ratings reflect the Bank’s solid core profitability, its sound generation of capital through retained earnings and the Bank’s sound and better than most domestic peers’ asset quality. The ratings also take into account Bankinter’s improved funding position, supported by a consistent growth of customer deposits, which has enabled the bank to rebalance its funding mix and it is now more aligned with similarly rated peers. The rating action also incorporates Bankinter’s robust capital position with large buffers over its minimum regulatory capital requirements.

RATING DRIVERS

Upward pressure on the ratings is unlikely in the short to medium term. It would require further strengthening of the Bank’s franchise in Spain, which could be partly reflected in good growth of its national market shares. Negative rating pressure on the long-term ratings could occur from a material weakening of the funding profile and capital levels.

RATING RATIONALE

DBRS considers Bankinter’s profitability as reflecting the bank’s solid core profitability and sound revenue diversification. Bankinter’s solid performance is reflected in one of the highest Return on Equity (RoE) ratios among its domestic and European peers reaching 11.4% in 2017 (as calculated by DBRS). DBRS also recognises Bankinter’s strong diversification of revenue sources with a higher proportion of non-interest revenues than most domestic peers. Net Interest Income (NII) represented 57% of total operating income, net fees 23%, other revenues (mainly its insurance business) 15%, and less than 2% arising from trading gains in 2017.

DBRS views Bankinter’s asset quality as sound and notably better than domestic peers, partly helped by the Bank’s low risk profile and sound risk management. Bankinter’s non-performing loan (NPL) ratio was 3.7% at end-March 2018, down from its peak of 5.4% at end-March 2014 and well below the average of the Spanish banking system. Total non-performing assets (NPA, which includes NPLs and foreclosed assets (FAs)) were 4.4% of total loans and FAs at end-March 2018. Moreover, the Bank is reducing the level of its NPAs, both by reducing NPLs and increasing the pace of FA sales. NPAs were down around 14% in 2017, primarily through reduction of NPLs, and remained stable in 1Q18. The total amount of FA sales amounted to EUR 225 million during 2017 or 55% of total gross stock at end-2017.

DBRS views the Bank’s funding profile as having significantly improved in recent years with customer deposits being the main source of funding, accounting for around 73% of total funding sources at end-March 2018 (as calculated by DBRS), much improved from around 40% at end-2012. Bankinter continued to increase its retail deposit base in 2017, with customer deposits growing by 4.5% YoY in 2017. DBRS considers that Bankinter is well positioned to continue growing its retail base both in Spain and Portugal.

DBRS views Bankinter’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. The Group’s fully loaded CET1 capital ratio stood at 12.0% at end-March 2018, up from 11.15% at end-2016. DBRS considers that Bankinter has large buffers over its minimum regulatory requirements of 7.125% for CET1 and 10.625% for Total capital. The IFRS 9 net impact on capital ratios was a positive impact of 42 bps. Bankinter fully took the IFRS 9 impact on both regulatory CET 1 phased-in and fully loaded ratios on 1st January 2018.

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

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017) and DBRS Criteria: Guarantees and Other Forms of Support (January 2018). These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial, Company disclosures, Bank of Spain and the European Banking Authority (EBA). 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, Global FIG
Initial Rating Date: November 15, 2012
Most Recent Rating Update: 14 July 2017

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