DBRS Assigns A (low) Rating to Senior Debt Issued by ICO, Trend Neg.

DBRS, Inc. (DBRS) has today assigned a rating of A (low) with a Negative trend to the Senior Unsecured Debt issued by Instituto de Crédito Oficial (ICO or the Bank), and a Short-Term Debt and Deposit rating of R-1 (low), Stable Trend. The Senior Unsecured Debt is backed by the explicit, unconditional, irrevocable and direct guarantee from the Kingdom of Spain (or the State). Therefore, the ratings and trend are equalised with the Long-Term and Short-Term Foreign and Local Currency ratings of the Kingdom of Spain.

ICO is a credit institution by law and is considered to be a State Finance Agency of Spain. ICO benefits from an explicit, irrevocable, unconditional and direct guarantee from the Kingdom of Spain that is stated in its by-laws under the Royal Decree Act 706/1999. ICO’s links to the Spanish government are evident in its Board of Directors, which includes representatives from the Ministries of Economy and Finance, but also in its mandate to act as a Financial Agency on behalf of the State when appropriate.

ICO was founded in 1971 as an institution responsible for the coordination and control of state-owned entities before becoming a state-owned entity in 1988 and later in 1991 a state-owned investment bank to support and develop any economic activities contributing to the growth of the Spanish economy and improving the distribution of the country’s national wealth. In carrying out its public service mandate, ICO’s strategy is to ensure that it is not loss making rather than seeking profit maximization. The Bank has remained profitable during the crisis, despite increased credit costs, helped by a low cost/income ratio. The Bank lending is primarily indirect to SMEs through the Spanish banks’ branch network (approximately 68% of the loan book at end-2011), and direct lending (32% of the loan book), which is typically participations in syndicated loans to large companies. To further its objectives, ICO also engages in various other activities, including venture capital, micro lending and providing financing, to support international activities of Spanish companies and entrepreneurs.

In addition to providing funding as an institutional lender, ICO also has the duty to contribute to the mitigation of the economic effects deriving from serious economic recessions, natural catastrophes or similar situations, as well as to act as the instrument for executing certain economic policy measures. Illustrating this responsibility, ICO played a central role in the implementation in 2012 of the “Fondo para la Financiación de los Pagos a Proveedores” (FFPP) through the distribution of the loans to the regions and municipalities, as well as providing EUR 6.3 billion of the total EUR 30 billion 5-year syndicated loan issued in March 2012. In this prolonged crisis, ICO’s countercyclical role is evident in the growth of its lending, which increased from EUR14.4 billion at the end of 2008 to EUR 82.9 billion by 3Q12, as it supported the flow of funding to the economy. Enabling it to align its funding needs with its lending activities, ICO funds itself primarily through the capital markets.

The last rating action on the Kingdom of Spain was taken on 8 August 2012, when DBRS downgraded its Long-Term Foreign and Local Currency ratings to A (low) from A (high) and maintained the Negative trend.

Notes:
All figures are in EUR unless otherwise noted.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our 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 rating is endorsed by DBRS Ratings Limited for use in the European Union.

Rating Committee Chair: Alan G. Reid
Lead Analyst: Roger Lister
Initial Rating Date: 25 February 2013
Most Recent Rating Update: 25 February 2013

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