DBRS Places A (high) Ratings of BBVA Under Review Negative After Sovereign Rating Action

DBRS, Inc. (DBRS) has today placed the ratings of Banco Bilbao Vizcaya Argentaria, S.A. (BBVA or the Group) Under Review with Negative Implications following a similar rating action on the Kingdom of Spain. Currently, the Group’s Issuer & Senior Debt rating is A (high) and its Short-Term Instruments rating is R-1 (middle). These rating actions follow DBRS’s placement of the Kingdom of Spain’s long-term foreign and local currency debt ratings of A (high) Under Review with Negative Implications.

BBVA’s intrinsic assessment (IA) of AA (low) remains unchanged. Additionally, DBRS maintains its SA-2 support assessment for BBVA, which indicates an expectation of timely systemic support in case of need. However, with the current rating for the Spanish sovereign below the AA (low) intrinsic assessment for BBVA, there is currently no uplift to the Group’s ratings.

DBRS’s review will focus on the impact on BBVA’s ratings of the higher systemic risks that are pressuring the Spanish sovereign rating. DBRS views the continued challenging environment for Spanish banks as continuing to pressure the ratings of BBVA, as the economy remains weak and the real estate sector has not recovered. Adding further to the headwinds, access to market funding has been pressured by heightened market concerns with the adequacy of liquidity and capitalisation of financial institutions, as well as the position of the Spanish sovereign.

If DBRS perceives a significant deterioration in the financial profile of BBVA, then DBRS could downgrade the ratings to reflect the increased headwinds. DBRS notes that BBVA generated 29% of its consolidated operating net revenues (excluding Corporate Activities) in Spain in 1Q12, demonstrating the diversity of the franchise outside of its domestic market. Additionally, DBRS views BBVA as generally better positioned to weather the extended economic crisis than it was going into the downturn, as it has bolstered its levels of generic and specific provisions to cover expected future losses, accessed the ECB’s long-term refinancing operation (LTRO) facility to refinance debt maturities through 2012 reducing near-term rollover risk, and it continues to its bolster capital levels. DBRS will factor these intrinsic strengths of the Group into its review of the ratings.

Notes:
All figures in Euros (EUR) unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations. Other methodologies used include the DBRS Criteria – Intrinsic and Support Assessments. Both can be found on the DBRS website under Methodologies.

The sources of information used for this rating include the DBRS rating of the Kingdom of Spain. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This credit rating has been issued outside the European Union (EU) and may be used for regulatory purposes by financial institutions in the EU.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Roger Lister
Rating Committee Chair: Steven Picarillo
Initial Rating Date: 23 November 2009
Most Recent Rating Update: 4 May 2012

For additional information on this rating, please refer to the linking document under Related Research.