DBRS Confirms Bankinter’s Long-Term Issuer Rating at A (low), Stable Trend

DBRS Ratings GmbH (DBRS) confirmed the ratings of Bankinter S.A. (Bankinter or the Bank), including the A (low) Long-Term Issuer Rating and the R-1 (low) Short-Term Issuer Rating. The trend on all ratings remains Stable. The Intrinsic Assessment (IA) is A (low), while the Support Assessment remains SA3. A full list of rating actions is included at the end of this press release.

KEY RATING CONSIDERATIONS
The confirmation of Bankinter’s ratings reflect its solid core profitability, the sound generation of capital through retained earnings and the Bank’s asset quality. The ratings also take into account Bankinter’s improved funding position which has benefitted from consistent deposit growth, enabling the Bank to rebalance its funding mix, which is now more aligned with similarly rated peers. The rating action also incorporates Bankinter’s robust capital position with its satisfactory buffers over its minimum regulatory capital requirements. Lastly, DBRS sees as positive the recent strengthening of the franchise through both organic growth and acquisitions.

RATING DRIVERS
Upward pressure on the ratings would require further strengthening of the Bank’s franchise while maintaining its solid financial fundamentals. Negative rating pressure on the long-term ratings could occur from a material weakening of the funding profile and capital levels.

RATING RATIONALE
Bankinter’s IA of A (low) is underpinned by the Bank’s solid franchise position as the 6th largest banking group in Spain (as of 1Q19 the Bank had total assets of EUR 78 billion). The Bank enjoys national market shares for loans and deposits of around 4%. However, its position in private banking is more substantial with a market share of 13% for open-ended collective investment scheme (SICAVS), and in the insurance market where its subsidiary Linea Directa Aseguradora has a market share of approximately 7% in motor insurance.

Bankinter’s franchise has been growing both organically and through acquisitions. In 2016, Bankinter acquired Barclays Portugal and its loan portfolio in Portugal now represents around 10% of its total loan book. In addition, during 2Q19, the Bank completed the acquisition of the retail business of EVO Banco and its consumer credit subsidiary in Ireland (announced in September 2018). This acquisition will add around EUR 1.5 billion of loans (80% in Spain and 20% in Ireland) and around EUR 3 billion of deposits (all in Spain). The Bank reported that the transaction had a negative impact on its capital ratios of around 29 basis points (bps).

Bankinter’s profitability continues to be solid, with the Bank’s solid core profitability and sound revenue diversification being reflected in its 12% Return on Average Equity (ROAE) ratio (as calculated by DBRS). DBRS also recognises Bankinter’s strong diversification of revenue sources with a higher proportion of non-interest revenues than most domestic peers. Net Interest Income (NII) represented 56% of total operating income, net fees 23%, other revenues (mainly its insurance business) 20%, and less than 3% arising from trading gains in 2018.

DBRS views Bankinter’s asset quality as sound and notably better than domestic peers, partly helped by the Bank’s low risk profile and sound risk management. Bankinter’s risk profile is dominated by the credit risk encompassed within its commercial banking activities, and notably the Bank continues to grow its net lending (up 4% YoY in 2018) compared to the 3% YoY reduction on average for the Spanish banking system. Bankinter’s non-performing loan (NPL) ratio was 3.1% (as calculated by DBRS) at 1Q19, down from its peak of 5.4% at 1Q14 and well below the average of the Spanish banking system. Total non-performing assets (NPAs, which includes NPLs and foreclosed assets (FAs)) were 3.7% of total loans and FAs at 1Q19, again lower than most domestic peers.

The Bank’s funding profile has significantly improved in recent years, with customer deposits as the main source of funding, accounting for around 74% of total funding sources at 1Q19 (as calculated by DBRS), much improved from around 40% at FY12. Bankinter continued to increase its retail deposit base in 2018, with customer deposits growing 10% YoY, and this helped Bankinter’s net loan to deposit (LTD) ratio, (as calculated by DBRS) to further improve to around 112% at 1Q19 (FY15: 137%). DBRS also notes that the EVO acquisition will positively impact the LTD ratio, adding approximately EUR 1.5 billion of loans and around EUR 3.0 billion of deposits. The Bank’s liquidity profile remains satisfactory as of March-2019, with both the Liquidity coverage ratio (LCR) and Net Stable Funding Ratio (NFSR) ratios above the minimum requirements. However, Bankinter’s liquidity metrics are still weaker than the average of their domestic peers.

DBRS views Bankinter’s capital position as sound, especially in the context of the Bank’s solid ability to generate capital internally through retained earnings and improved access to the capital markets. Bankinter reported a CET1 ratio of 11.80% at 1Q19, well above the minimum regulatory requirement of 8.20%. Capital cushions over minimum regulatory requirements are sound at 258 bps for Total Capital, close to the average of Spanish banks supervised by the Single Supervisory Mechanism (295 bps).

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

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodologies are the Global Methodology for Rating Banks and Banking Organisations (June 2019) and DBRS Criteria: Guarantees and Other Forms of Support (January 2019). 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 Banking Authority (EBA). 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 GmbH are subject to EU and US regulations only.

Lead Analyst: Pablo Manzano, Vice President – Global FIG
Rating Committee Chair: Ross Abercromby, Managing Director – Global FIG
Initial Rating Date: November 15, 2012
Last Rating Date: June 22, 2018

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

For more information on this credit or on this industry, visit www.dbrs.com.