DBRS Confirms Banco Bilbao Vizcaya Argentaria, S.A. Issuer Rating at A (high); Stable trend

DBRS Ratings GmbH (DBRS) confirmed Banco Bilbao Vizcaya Argentaria, S.A. (BBVA or the Group)’s Long-Term Issuer Rating at A (high) and the Short-Term Issuer Rating at R-1 (middle). The trends on all ratings is stable. The Group’s intrinsic assessment (IA) was maintained at A (high), one notch above the rating of the Kingdom of Spain, reflecting the benefits of its international diversification. The support assessment was maintained at SA3. See the full list of ratings at the end of this press release.

KEY RATING CONSIDERATIONS
The confirmation of BBVA’s Long and Short-term Issuer ratings reflects the Group’s strong and diversified franchise in Spain, Mexico, Turkey, the U.S. and South America. In DBRS’s view, this supports the Group’s sound earnings and capital generation, despite pressure stemming from the continued low interest rate environment in Europe and challenging operating environment in Turkey and Argentina. The ratings also take into account the Bank’s sound funding and liquidity profile, as well as its overall solid capital position. Ratings are further underpinned by the more normalised asset quality of the Group, following the transfer of its foreclosed assets to Cerberus.

RATING DRIVERS
Positive rating pressure to the Long-Term Issuer rating would require an improvement of the rating of the sovereign of the Kingdom of Spain combined with continued improvement in core domestic profitability and capital position, as well as maintaining solid performance in its international businesses.

Negative rating pressure to the Long-Term Issuer rating could arise from a deterioration of the sovereign rating of the Kingdom of Spain. It could also arise from a sharp deterioration in BBVA’s risk profile. In particular, a material deterioration in several of the Group’s international businesses could put downward pressure on BBVA’s ratings as well, as this would reduce the benefit of the Group’s geographical diversification.

RATING RATIONALE
DBRS views the Group’s franchise as strong, as reflected in its leading franchise position in Spain and its strong international diversification and leading positions in Mexico and Turkey and growing presence in South America and the U.S. BBVA’s highly diversified business model has continued to sustain the Group’s earnings and to pass through headwinds in certain geographies.
Results in 2018 were positively impacted by the capital gains of the sale of BBVA Chile whilst 2017 results were negatively impacted by the impairment on Telefonica. As a result, BBVA reported net attributable income of EUR 5.3 billion in 2018, up 51.3% year-on-year (YoY) (up 78.2% YoY at constant exchange rates). Excluding these impacts, net results were up 7.0% YoY in 2018 or 21.9% at constant exchange rates. This reflects primarily sustained revenue growth and lower provisions. Despite the very low interest rate environment in Europe, NII increased 10.8% YoY in 2018 at constant exchange rates, helped by lending volume growth in emerging markets, especially in South America. In addition, NII benefited from higher contribution from inflation-linked bonds in Turkey. Fees and commissions were up 8.9% YoY in 2018 at constant exchange rates, driven by good growth in almost every division (except the U.S.). Efficiency levels have remained strong at Group level despite the Bank’s growth strategy in emerging markets and high investment in technology and digitalisation. In 2018, the Group’s cost-to-income ratio was 49.3% in 2018 (as calculated by DBRS), stable YoY and comparing favorably to some of its European peers. Total provisions were down 12.0% YoY in 2018, mainly because of the high base in 2017 which included the Telefonica impairment but also supported by a continued strong reduction of provisions in Spain (down 46% YoY). DBRS also notes that provisions increased in Turkey as a result of the challenging macroeconomic environment in the country in 2018.

Asset quality has continued to benefit overall from improved economic conditions in the Group’s main markets, especially in Spain, despite some turmoil in Turkey. In addition, the transaction that saw the transfer of the Group’s foreclosed assets to Cerberus in 4Q18 is another element of comfort, as the Group’s non-performing (NPA) ratio has now reached more normalised levels, in line with European peers. BBVA’s NPA ratio, which includes non-performing loans (NPLs) and foreclosed assets (FAs) represented 5.1% of the Group’s gross loans and FAs at end-2018, improved from 7.5% a year earlier.

DBRS views BBVA as maintaining a solid liquidity and funding position. The Group’s net loans to deposit ratio (LTD, as calculated by DBRS: ex repos and covered bonds included in deposits) has remained stable at a good level of 103.8% at end-2018 despite strong loan growth in certain geographies. BBVA has continued to strengthen its capital base through retained earnings and is conformably above minimum regulatory requirements. At end-2018, BBVA reported a fully loaded Common Equity Tier 1 (CET 1) ratio of 11.34%, up 26 bps from the end-2017 CET fully loaded. DBRS also notes that BBVA is well placed to comply with its MREL requirement by January 1, 2020.

The Grid Summary Grades for Banco Bilbao Vizcaya Argentaria, S.A. are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Strong; Risk Profile – Strong/Good; Funding & Liquidity – Strong; Capitalisation – Strong.

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 can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial, Company disclosures, the European Banking Authority, the Bank of Spain and the European Central Bank. 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 GmbH are subject to EU and US regulations only.

Lead Analyst: Arnaud Journois –Vice President - Global FIG
Rating Committee Chair: Elisabeth Rudman - Managing Director, Head of EU FIG – Global FIG
Initial Rating Date: November 23, 2009
Last Rating Date: April 12, 2018

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