DBRS Upgrades CaixaBank’s Senior Ratings to A, Stable Trend

DBRS Ratings Limited (DBRS) has upgraded the ratings of CaixaBank S.A. (CaixaBank or the Bank), including the Long-Term Issuer Rating to “A”, the Long-Term Critical Obligations Rating (COR) to AA (low), as well as its Senior Non-Preferred Debt and Subordinated Debt to A (low) and BBB (high), respectively. Concurrently DBRS confirmed the Bank’s Short-Term Issuer rating of R-1 (low) and the Short-Term COR of R-1 (middle). All ratings have a Stable Trend. The Bank’s Intrinsic Assessment (IA) is upgraded to “A” and the Support Assessment remains at SA3. See the full list of ratings in the table at the end of this press release.

KEY RATING CONSIDERATIONS
The upgrade of CaixaBank’s long-term ratings follows the rating action on the Kingdom of Spain. On April 6, 2018 DBRS upgraded the Long-Term Foreign and Local Currency Issuer Rating of the Kingdom of Spain to A with stable trend from A(low) with stable trend. The upgrade of CaixaBank’s long-term ratings primarily reflects that, given its strong franchise position in Spain, DBRS considers that CaixaBank will continue to benefit from the sound economic conditions in Spain and improved position of the Spanish sovereign. DBRS expects this will translate into further improvements in its asset quality and domestic profitability. CaixaBank’s ratings also consider the Bank’s solid and improving core revenue generation, strengthened capital position and sound funding and liquidity position. DBRS notes, however, that asset quality, albeit significantly improved in recent years, remains weaker than comparable European peers.

RATING DRIVERS
Positive rating pressure to the long-term ratings would require a positive rating action in the Spanish sovereign rating coupled with a material improvement in the Bank’s risk profile and core profitability, particularly in Spain.

Negative pressure to the CaixaBank’s long-term ratings, although unlikely in the short to medium term, would arise from a deterioration of Spain’s sovereign position, a material deterioration of asset quality or any signs that the Bank’s franchise is weakening.

RATING RATIONALE
CaixaBank S.A. is the leading commercial bank in Spain that provides universal banking services to individuals, small- and medium-sized enterprises and large corporations. CaixaBank has a nationwide footprint and is the third largest bank by total assets in Spain, where it has strong market shares for loans of around 16% and 14% for deposits. In Portugal, CaixaBank majority owns the fifth largest bank by total assets, Banco BPI.

DBRS considers CaixaBank’s profitability has significantly improved in recent years helped by sustained growth of core revenues in Spain and lower impairments Year-on-Year (YoY). In 2017, core revenues in Spain grew strongly by 5.5% YoY, driven by strong growth of commissions and significantly lower funding costs. Lower loan loss provisions also translated into an improvement of the cost of risk in Spain to 39 bps in 2017 from 46 bps in 2016.

The Bank continued to reduce its stock of Non-performing assets (NPAs) at a good pace, partly helped by the improving economic and real estate market conditions in Spain. The NPA ratio was 11.8% at end-2017, much improved YoY although considerably weaker than similarly rated European peers. NPA coverage levels (including debt cancelled at the foreclosure of real estate assets) are in line with the average of the system at 53%, and are expected to improve to 56.7% after the implementation of IFRS 9 from January 1st 2018.

Caixabank’s funding is underpinned by its franchise position in Spain where the bank has maintained one of the largest market shares for deposits. DBRS considers that CaixaBank’s funding profile remains sound and was not materially impacted by the political environment in Catalonia, whilst DBRS notes that the Bank’s customer deposits in Spain grew overall by 1.2% YoY in 2017.

DBRS considers CaixaBank’s capital position as sound, due to its solid ability to generate capital internally through retained earnings and recently improved access to capital markets for Tier 2 and AT1 instruments. The CET1 (fully loaded) ratio was 11.7% and the CET1 (phased-in) ratio was 12.7% at end-2017. The Bank amply exceeded at end-2017 minimum regulatory requirements of 8.063% for CET1 and 11.563% for Total capital.

The Grid Summary Grades for CaixaBank S.A. are as follows: Franchise Strength – Strong; Earnings – Strong/Good; Risk Profile – Good; Funding & Liquidity – Strong/Good; Capitalisation – Strong/Good.

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). This can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company documents, SNL Financial and European Banking Authority. 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 and US regulations only.

Lead Analyst: Maria Rivas, Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of EU FIG
Initial Rating Date: March 4, 2013
Most Recent Rating Update: March 15, 2018

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