DBRS Morningstar Confirms Bankinter at A (low), Trend Revised to Negative from Stable

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Bankinter S.A. (Bankinter or the Bank), including the Long-Term Issuer Rating of A (low) and the Short-Term Issuer rating of R-1 (low). The trend on the Group’s long-term ratings has been revised to Negative from Stable whilst the trend on the Group’s short-term ratings remains Stable. DBRS Morningstar has also maintained the Intrinsic Assessment (IA) of the Bank at A (low) and the Support Assessment is SA3. See a full list of ratings at the end of this press release.

KEY RATING CONSIDERATIONS
The change of the Trend to Negative reflects our view that the wide and evolving scale of economic and market disruption resulting from the coronavirus (Covid-19) pandemic will have a negative effect on the operating environment for banks in Spain, including Bankinter. This is likely to reverse some of the recent positive developments, and we expect the Bank’s revenues, asset quality and cost of risk to be negatively affected. The impact will likely emerge in the coming quarters, whilst the implications for the medium to long-term will depend on the evolution of the outbreak. Downward rating pressure would intensify should the crisis be prolonged.

The change of the Trend to Negative reflects DBRS Morningstar’s view that the Bank’s profitability will be negatively affected by the economic effects resulting from the coronavirus pandemic, most notably weaker lending growth, lower fees and commissions as well as higher loan loss provisions. This will be coupled with additional negative pressure on Bankinter´s revenues, due to the planned listing of its insurance subsidiary, Linea Directa (LDA). The Bank will lose an important source of revenues as LDA contributed 19% of Bankinter´s net attributable income in 2019. The transaction was approved at Bankinter’s Annual General Meeting on March 19, 2020 and the Bank expects to close the transaction by the end of 2020 after receiving regulatory authorization. In addition, the Bank’s relatively high exposure to SMEs makes it more vulnerable to deterioration in sectors that are likely to be severely affected in this environment.

The confirmation of Bankinter’s ratings reflect its solid core profitability and the Bank’s solid track record in asset quality. The ratings also take into account Bankinter’s solid 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 capital position with its satisfactory buffers over its minimum regulatory capital requirements. DBRS Morningstar also considers that its relatively higher exposure to affluent individuals, which are likely to be less affected in this environment, and good risk management record could help to mitigate some of the negative impact of this crisis on its credit fundamentals. DBRS Morningstar also expects the unprecedented support measures announced by the Spanish government, as well as several other international authorities and central banks to help to mitigate the economic impact.

RATING DRIVERS
Any upgrade is unlikely in the short-term given the recent change of trend. However, the trend on the Long-Term ratings could revert to Stable if the Bank were able to demonstrate solid core profitability despite the global Covid-19 pandemic and limited asset quality impact.

The ratings could be downgraded if the Bank’s profitability experiences a material decline. A downgrade could also result if asset quality is materially impacted or there is a significant weakening of capital.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792

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

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (11 June 2019) https://www.dbrsmorningstar.com/research/346375/global-methodology-for-rating-banks-and-banking-organisations and the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (22 January 2020) - https://www.dbrsmorningstar.com/research/355780/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883

The sources of information used for this rating include Bankinter - Annual Reports (2015-2019), Bankinter - Quarterly Reports (2015-2019), Bankinter - Presentations (2015-2019), European Banking Authority (EBA) Transparency Exercise 2019, 2018 EBA-wide stress test, Bank of Spain Statistical Bulletin and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar 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 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar 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

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/359645

Ratings assigned by DBRS Ratings GmbH, are subject to EU and U.S. regulations only.

Lead Analyst: Pablo Manzano, CFA, Vice President - Global FIG
Rating Committee Chair: Ross Abercromby, Managing Director - Global FIG
Initial Rating Date: November 15, 2012
Last Rating Date: June 21, 2019

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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