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

DBRS Ratings GmbH (DBRS) confirmed the ratings of CaixaBank S.A. (CaixaBank or the Bank), including the Long-Term Issuer Rating of “A” and the Short-Term Issuer rating of R-1 (low). All ratings have a Stable Trend. The Bank’s Intrinsic Assessment (IA) remains at A and the Support Assessment at SA3. See the full list of ratings in the table at the end of this press release.

KEY RATING CONSIDERATIONS
The confirmation of CaixaBank’s ratings reflect the strength of its banking franchise in Iberia which has supported the Bank’s improvement in core revenues in a challenging low interest rate environment. The ratings also take into account that CaixaBank´s asset quality, albeit significantly improved in recent years, remains weaker than comparable European peers. The confirmation also recognises CaixaBank’s sound funding and liquidity position as reflected by solid liquidity ratios and a good track record of liquidity management in a difficult political environment. The ratings also incorporate CaixaBank’s sound capital levels, as reflected by its positive results in the recent EBA stress test, although DBRS notes that capital ratios remain lower than their European peer group.

RATING DRIVERS
Positive rating pressure to the long-term ratings would require a positive rating action in the Spanish sovereign rating coupled with improvement in the Bank’s risk profile and core profitability.

Negative pressure to the CaixaBank’s long-term ratings, although unlikely in the short to medium term, could arise from a deterioration in Spain’s sovereign position or a significant deterioration in asset quality. Indications of a material increased risk profile, particularly within CaixaBank’s consumer lending business, without the appropriate increase in capitalisation, would also have negative rating implications.

RATING RATIONALE
CaixaBank is the third largest Spanish banking group by total assets. CaixaBank S.A. is one of the leading commercial banks in Iberia that provides universal banking services to individuals, small- and medium-sized enterprises and large corporations. The Bank has a strong market shares for loans of around 16% and 15% for deposits in Spain and in Portugal, CaixaBank owns the fifth largest bank by total assets, Banco BPI.

DBRS considers CaixaBank’s profitability has significantly improved in recent years helped by sustained growth of core revenues in Spain and lower impairments. In 2018, core revenues grew strongly by 3.4% Year-on-Year (YoY), driven by strong growth of commissions and lower funding costs. Lower loan loss provisions also translated into an improvement in the cost of risk (as calculated by DBRS) to 6 bps in 2018 (or 18 bps excluding an extraordinary provision release) from 35 bps in 2017.

CaixaBank’s risk profile improved during 2018. The Bank continued to reduce its stock of Non-performing assets (NPAs) at a good pace, helped by the improving economic and real estate market conditions in Spain. The Bank completed a significant transaction with institutional investors to remove most of its Foreclosed Assets (FAs) from its balance sheet. The transaction was closed in 4Q18 with a neutral impact on P&L and a positive impact of 15 bp on the CET1 (fully loaded). As a result, the NPA ratio (as calculated by DBRS) decreased from 11.8% at end-2017 to 5.3% at end-2018. DBRS´s rating upgrade in April 2018 reflected DBRS’s expectation that the sound economic conditions in Spain and improved position of the Spanish sovereign would translate into further improvements in the Bank´s asset quality during 2018. Despite the significant improvement, DBRS still sees CaixaBank’s NPL and NPA ratios as above other European peers.

DBRS sees among CaixaBank´s potential credit risk sources its exposures to consumer lending. DBRS considers the Bank's exposure to consumer loans (around 5.5% of their performing loan book) are well managed, and risks remained contained. However, any indication of an increased risk profile within CaixaBank’s consumer lending would have a negative impact on DBRS assessment of CaixaBanks risk profile.

In addition, DBRS sees as positive, the agreement reached by the Bank´s Board of Directors on September 2018 to sell CaixaBank`s stake in Repsol, S.A. As of end-March 2019 CaixaBank´s stake on Repsol was less than 3% compared to 9.64% as of end-2017. The sale had an initial negative impact of EUR 453 million during 3Q18. Nevertheless, the Bank expects the transaction to have a neutral impact on its CET1 (fully loaded) ratio once the sale is completed during 2019. DBRS considers that the sale will reduce CaixaBank´s market risk as well as its earnings and capital volatility.

Caixabank’s funding is underpinned by its franchise position in Spain where the Bank has maintained one of the largest market shares for deposits. DBRS considers that CaixaBank’s funding profile remains sound and was not materially impacted by the political environment in Catalonia, whilst DBRS notes that the Bank’s customer deposits in Spain grew overall by 5.2% YoY in 2018. As of end-March 2019, CaixaBank´s Minimum Requirement for own funds and Eligible Liabilities (MREL) requirements have not been announced. However, DBRS expects that CaixaBank will comfortably meet its MREL requirement based on DBRS´s interpretation of the rules and CaixaBank´s solid Pro-Forma fully-loaded MREL ratio (including only subordinated liabilities) of 17.5% as of end-January 2019.

DBRS considers CaixaBank’s capital position as sound, due to its solid ability to generate capital internally through retained earnings and access to capital markets. The CET1 (fully loaded) ratio was 11.5% and the Total capital ratio (fully loaded) ratio was 15.2% at end-2018. The Bank amply exceeded at end-2018 minimum regulatory requirements of 8.75% for CET1 and 12.25% for Total capital. However, DBRS considers that CaixaBank capital ratios are still below other European peers. CaixaBank´s results in the 2018 EBA-wide stress were positive, reflecting the benefits of its franchise and its capacity to absorb adverse economic shocks. This was illustrated in a solid a fully loaded CET1 ratio of 9.11% at end-2020 in the adverse scenario. Notably, CaixaBank reported only 239 bps capital depletion (on the fully-loaded CET1 ratio) under the adverse scenario, compared to an average of 405 bps for the sample of banks included in the EBA-wide stress.

Concurrently, DBRS has discontinued the ratings on CaixaBank’s Subordinated Fixed Reset Notes - XS0989061345 and CaixaBank’s Senior Unsecured Debt - ES0340609140 due to their buyback and repayment by CaixaBank

The Grid Summary Grades for CaixaBank S.A. are as follows: Franchise Strength – Strong; Earnings – Strong/Good; Risk Profile – Good; 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 (July 2018). This can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include Company documents, SNL Financial, European Banking Authority (EBA) and Bank of Spain. 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: Pablo Manzano, Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of EU FIG, Global FIG
Initial Rating Date: March 4, 2013
Most Recent Rating Update: April 12, 2018

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