DBRS Upgrades Bankinter’s Senior Ratings to A (low), Stable Trend

DBRS Ratings Limited (DBRS) has today upgraded Bankinter, S.A.’s (Bankinter or the Bank) ratings, including its Issuer Rating and Senior Unsecured Long Term Debt & Deposit Rating, to A (low) from BBB (high). At the same time DBRS has confirmed Bankinter’s Short-Term Debt & Deposit rating at R-1 (low). The Trend on all ratings is Stable. The Bank’s Intrinsic Assessment (IA) has been moved up to A (low) and the Support Assessment remains at SA3. See the full list of ratings is in the table at the end of this press release.

In upgrading Bankinter’s senior ratings to A (low), DBRS recognises the ongoing positive trends in Bankinter’s financial performance. DBRS considers the Bank well positioned to take advantage of the opportunities offered by the improving economic environment to strengthen its franchise position in Spain, whilst maintaining its solid financial performance and asset quality which is good relative to Spanish peers. DBRS has also taken into account Bankinter’s demonstrated track record in consistently growing retail deposits, which has enabled the bank to rebalance its funding mix, and it is now more aligned with similarly rated peers. Bankinter’s rating also reflects its strong, diversified and recurrent earning generation, which provides the Bank with good capacity to generate capital. Moreover, the Bank has its reinforced capital position after the issuance of both AT1 and Tier 2 instruments in the last two years. DBRS considers that, as a result, Bankinter is well placed to face upcoming regulatory requirements.

Bankinter is a medium-size banking group focused on providing retail, commercial and investment banking, asset and private wealth management and insurance products to affluent individuals, SMEs and corporates in Spain. The Bank also benefits from its strong digital network, which supports its growing market shares in high margin businesses such as private banking and lending to SMEs and corporates. Over recent years, Bankinter has been able to gradually expand its franchise in segments where the bank had a lower presence before the financial crisis, such as SMEs and consumer lending. With total assets of EUR 70 billion at end-March 2017, Bankinter is the 6th largest Spanish banking group. Bankinter also has some presence in Portugal after it acquired Barclays PLC operations in Portugal in April 2016.

Bankinter’s results highlights the Bank’s solid and resilient underlying profitability helped by its strong franchise and business expansion. Bankinter reported EUR 490 million in Net Attributable Income in 2016, up around 30% YoY, and EUR 124 million of net attributable income in 1Q17 compared to EUR 105 million in 1Q16. Whilst results were supported by the integration of Bankinter Portugal in 2Q16, they were also driven by net interest income growth, continued lower impairments and solid performance of the Bank’s insurance business.

Bankinter’s prudent risk management and policies have supported the Bank’s conservative risk profile relative to peers. Bankinter reported at end-March 2017 one of the lowest non-performing loan (NPL) ratios of the Spanish banking sector at 4.2% of total gross loans and a total non-performing assets (NPA, which includes NPLs and foreclosed assets FAs) of 5.2% of total loans and FAs. Moreover, the Bank is reducing the level of its NPAs and increasing the pace of FA sales, which amounted to EUR 219 million during 2016 or 42% of total gross stock at end-2016.

DBRS views the Bank’s funding profile as significantly improved in recent years with customer deposits being the main source of funding, accounting for around 72% of total funding sources at end-March 2017 (as calculated by DBRS and excluding repos), much improved from around 40% at end-2012. While the loan books of the majority of Spanish banks have been deleveraging, Bankinter has been steadily growing its loan book since 2013. Gross loans were up 16.1% in 2016 YoY (or 6% excluding the integration of Bankinter Portugal). DBRS considers that given its strengthening franchise, Bankinter is well positioned to continue growing its retail base both in Spain and Portugal. This is reflected in deposits growth of around 10% in Portugal and 2% in Spain quarter on quarter in 1Q17.

DBRS considers Bankinter’s capital position as sound, supported by the Bank’s low risk profile and demonstrated capacity to generate capital year after year through retained earnings. Bankinter has the lowest capital requirements under the SREP for Spanish banks. Bankinter reported a CET1 (phased-in) ratio of 11.6% and a CET1 (fully-loaded) ratio of 11.3% at end-March 2017. Bankinter is required by the European authorities to meet a minimum Overall Capital Requirement (OCR) for CET1 (phased-in) ratio of 6.5% according to the Supervisory Review and Evaluation Process (SREP), and a 10% for total capital (phased-in), which includes the AT1 and Tier 2 buckets. The Bank exceeds the minimum requirements with a phased-in CET1 (phased-in) ratio of 11.6% at end-March 2017 and the total capital ratio was 12.7%. Pro-forma and including the EUR 500 million of Tier 2 instruments issued in April 2017, the total capital ratio would be 14.33% at end-March 2017 (as estimated by DBRS), which is 4.33% above the minimum.

RATING DRIVERS:

Upward pressure on the ratings is unlikely considering this rating action. It would require further substantial improvement in funding and liquidity, and maintaining sound earnings, asset quality and robust capital. It would also require an upgrade of the Sovereign rating of the Kingdom of Spain.

Negative rating pressure on the ratings could occur from a material weakening of the funding profile, earnings capacity and capital levels. It could also arise from a significant increase of the Bank’s risk profile.

Notes:
All figures are in Euros unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial, company disclosures, Bank of Spain and the European Central Bank. 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 Limited are subject to EU regulations only.

Lead Analyst: Maria Rivas – Vice President - Global FIG
Rating Committee Chair: Roger Lister - Managing Director, Chief Credit Officer, Global FIG and Sovereign
Initial Rating Date: November 15, 2012
Most Recent Rating Update: March 7, 2017

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