DBRS Initiates Ratings Coverage of Bankinter at A (low), Negative Trend

DBRS, Inc. (DBRS) has today initiated coverage of Bankinter S.A. (Bankinter or the Bank). Bankinter is a Spanish bank with a local nationwide franchise. DBRS has assigned to Bankinter a Senior Unsecured Debt & Deposit rating of A (low), Negative Trend, and a Short-Term Debt and Deposit rating of R-1 (low), Stable Trend. At the same time, DBRS assigned an intrinsic assessment (IA) to the Group of BBB (high). Also today, DBRS assigned a rating of A (low) to the government guaranteed Senior Notes (the Notes) issued by Bankinter with a Negative Trend. This rating is based on the explicit guarantee provided by the Kingdom of Spain and reflects the current DBRS rating on the sovereign of A (low) with a Negative Trend.

The IA of BBB (high) reflects Bankinter’s good underlying performance, resilient credit fundamentals, proven solid risk management that is enabling the Bank to weather difficult times, and DBRS’s expectation that Bankinter will continue to maneuver through the extended crisis and economic weakness in Spain. With approximately EUR 57.2 billion in total assets at end-September 2012, Bankinter is a mid-size Spanish commercial and retail bank operating in a niche market. As the Spanish government is expected to take action needed in order to avoid the threat of contagion spreading throughout the national banking industry, DBRS anticipates that Bankinter would likely receive some form of timely systemic support in a highly stressed scenario, resulting in an SA-2 support assessment for the Bank. For Bankinter, this SA-2 designation results in a one-notch uplift from the IA.

Supporting Bankinter’s A (low) rating level is Bankinter’s successful positioning that primarily targets affluent individuals and medium- and large- enterprises in Spain. Bankinter has generated positive earnings annually through the financial crisis. Supporting the strength of these earnings, non-interest income from insurance activities generated a substantial fifth of the Bank’s operating revenues in recent quarters, which somewhat compensates for a historically low NIM reflective of Bankinter’s low risk profile. DBRS views Bankinter as having a well-established franchise that is underpinned by a multi-channel network and technology expertise in on-line and product delivery, which enables the Bank to compete successfully with larger competitors.

Importantly, the last stress-test performed by Oliver Wyman would suggest that the Bank’s ability to generate income before provisions and taxes (IBPT) in the future is less sensitive to a very stressed scenario than its peers, as its IBPT for 2012-2014 in an adverse scenario would appear to be in the region of EUR 1.8 billion compared to EUR 431 million for the full year of 2011. Additionally, the Bank has a solid level of capitalization under the last regulatory requirements, in particular under the EBA criteria that include a buffer for sovereign debt. Bankinter reported an EBA core tier 1 ratio of 9.44% at end-September 2012, above the 9% required. Benefiting from its specialization into wealthy segments, the Bank successfully passed the latest stress-tests.

Unlike most of the banking industry, Bankinter has limited exposure to real-estate developers, which is now benefiting the Bank and enabling it to take advantage of the confidence of customers and investors. At the same time, DBRS recognises the challenges the Bank faces in funding costs and maintaining liquidity, given its wholesale funding reliance, albeit diminishing, as well as the weakness in Spain’s economy and the stress in Spanish financial markets.

The Negative Trend on the Bank’s A (low) rating reflects the risks posed by the challenging environment in its home market, the weakened economy and the position of the sovereign

Notes:
All figures are in 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 company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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

Lead Analyst: Roger Lister
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 15 November 2012
Most Recent Rating Update: 15 November 2012

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