DBRS Confirms CaixaBank Long-Term Ratings at A (low), Trend now Positive

DBRS Ratings Limited (DBRS) has today confirmed CaixaBank, S.A.’s (CaixaBank or the Bank) Unsecured Long-Term Debt & Deposit rating at A (low) and its Short-Term Debt & Deposit rating at R-1 (low). The trend on the Long-Term Debt & Deposit rating has been changed to Positive from Stable. The trend on the Short-Term Debt & Deposit rating remains Stable. The Bank’s Intrinsic Assessment (IA) remains A (low) and the Support Assessment remains SA3. As a result, the Bank’s final ratings are positioned in line with its IA. DBRS has also confirmed the A (low) Senior Notes, Guaranteed by the Kingdom of Spain (the Notes) issued by CaixaBank with a Positive 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 Positive trend. See a full list of ratings table at the end of this press release.

The change in the trend to Positive from Stable on the Bank’s Long-Term ratings reflects CaixaBank’s consistent improving fundamentals and resilient franchise throughout the financial crisis. It also considers that, given its strong franchise position in Spain, the Bank’s fundamentals are expected to continue to benefit from further improvements in Spain’s economic environment and sovereign position (DBRS recently changed the trend on the Kingdom of Spain’s A (low) rating to Positive from Stable). Caixabank’s ratings reflect the strength of its solid retail franchise in Spain, where it is the market leader in terms of loans and deposits with market shares of 16.4% and 15.1% respectively, the Bank’s strong management capabilities, its solid funding and liquidity position and sound capital levels.

DBRS sees the Spanish banking and regulatory environment as still facing several challenges, including the persistently low interest rate environment, high competition for customer deposits, generally low demand for credit and the potential pressure on profitability from the removal of the floors on mortgages. However, DBRS expects Caixabank to continue to demonstrate earnings and profitability resiliency supported by its domestic franchise strength and strong fundamentals.

Upward movement in the senior ratings would likely require further improvement in the rating of the Kingdom of Spain, together with a continuation of the bank’s solid fundamentals. Downward pressure on the ratings, although unlikely in the short to medium term, would likely be driven by a material deterioration in the Bank’s fundamentals, particularly asset quality, or profitability.

CaixaBank’s progress has also been supported by improved operating profitability. It reported net income of EUR 996 million in 9M15, up 57% year-on-year (YoY), driven by a significant increase in all revenue sources, as well as lower loan loss and other asset provisions. Core banking revenues (gross operating revenues excluding trading gains from the sale of securities portfolios) were up 13% YoY, largely benefiting from lower funding costs and the acquisition of Barclays Spain SAU (Barclays Spain) earlier in 2015. Importantly, loan loss provisions were also down 17% YoY, largely reflecting a lower stock of non-performing assets (NPAs).

CaixaBank’s asset quality remains better than most domestic peers, helped by the Bank’s low risk appetite and active reduction of non-performing loans (NPLs) and sale of foreclosed real estate assets. Caixabank has demonstrated during the last nine moths a consistent improvement of asset quality quarter on quarter (QoQ) helped by improved economic and unemployment conditions and the stabilisation of the Spanish housing market. In fact, gross NPLs entries in 3Q15 (including loans and contingent liabilities) were the lowest since 3Q11. CaixaBank’s NPL ratio (as calculated by DBRS) was 8.8% at end-9M15, well below the Spanish system average of 10.7%.

Caixabank benefits from a sound funding and liquidity position. Supported by its strong franchise in Spain, the Bank has one of the largest customer deposit bases in Spain, which has been built up organically and through acquisitions, the most recent being Barclays Spain. The Bank’s net loan to deposit (LTD) ratio, as calculated by DBRS, and excluding repos, was 110% at end-9M15. The Bank also has a robust liquidity position with an ample unpledged liquidity buffer of EUR 50.9 billion (post haircuts) at end-September 2015, which covers 3.5x upcoming refinancing needs until 2017.

DBRS views CaixaBank’s capitalisation as solid, especially in the context of the Bank’s fairly low risk profile and the Bank’s strong ability to generate capital internally through retained earnings. The Bank reported a fully loaded Common Equity Tier 1 (CET1) capital ratio of 11.6% at end-September 2015.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2015). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2015) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2015).These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company reports, the European Central Bank, European Banking Authority, Bank of Spain and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was 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 historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Maria Rivas
Rating Committee Chair: Roger Lister
Initial Rating Date: March 4, 2013
Most Recent Rating Update: February 10, 2015

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For additional information on this rating, please refer to the linking document located at: http://www.dbrs.com/research/236983/banks-and-banking-organisations-linking-document.pdf

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