DBRS Assigns B (low) Rating to Banco Comercial Português AT1 Instruments

DBRS Ratings GmbH (DBRS) has assigned a B (low) rating to the Additional Tier One (AT1) Instruments of Banco Comercial Português, S.A. (BCP or the Bank). The trend is Positive, in line with the trend of the Bank’s Issuer Rating.

In assigning the B (low) rating to the AT1 Instruments, five notches below the Bank’s Intrinsic Assessment (IA) of BB (high), DBRS highlights that the AT1 obligations are deeply subordinated and constitute the most junior debt instruments of the Bank. They are perpetual in tenor and can be written down in part or in full if the Issuer or Regulator determines there is a Trigger Event. The trigger level for write-downs is set at a minimum CET1 ratio for BCP of 5.125%. While the instruments can be written up in part or in full at the full discretion of the Bank, there are conditions for positive and distributable net income which need to be met. BCP can cancel interest payments on the AT1 Instruments in part or in total and, under some circumstances, may be required to cancel interest payments.

The AT1 B (low) rating is five notches below BCP’s IA of BB (high) and considers both the probability of the Bank tripping the capital trigger, as well as expected recovery levels. The notching from the IA for such instruments can range between 3 notches and more than 6 notches. In the case of BCP, the notching takes into consideration the sizeable buffer of 6.675% between the 5.125% trigger point and the Bank’s 11.8% fully loaded CET1 ratio (or 8.8% minimum CET1 % under the ECB SREP 2018). On the other hand, the notching also takes into account the risks captured in the Bank’s IA, given the large stock of NPEs which corresponded to approximately 12.3% of total gross loans (or 6.0%, net of provisions) as of end-September 2018. For more detail on DBRS’s approach, see Global Methodology for Rating Banks and Banking Organisations (July 2018).

RATING DRIVERS
The rating of the AT1 Instruments will generally move in line with the IA which is at the same level of the Issuer Rating at BB (high).
The ratings of BCP could be upgraded if the Bank continues to reduce NPLs at a meaningful rate and to improve profitability in Portugal, through core revenue growth and lower cost of risk. Negative rating pressure could arise if there is a significant deterioration in asset quality and capital, and the Trend could also return to Stable if the Bank is unable to deliver planned reductions in NPLs.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (July 2018). This can be found at: http://www.dbrs.com/about/methodologies

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

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.
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 GmbH are subject to EU and US regulations only.

Lead Analyst: Nicola De Caro, Senior Vice President - Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of EU FIG
Initial Rating Date: 10 June 2011
Last Rating Date: 11 June 2018

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