DBRS Morningstar Confirms Liberbank at BBB (low); Trend Remains Stable

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Liberbank, S.A. (Liberbank or the Bank), including the Long-Term Issuer Rating of BBB (low) and the Short-Term Issuer Rating of R-2 (middle). The trend on all ratings remains Stable. DBRS Morningstar has also maintained the Bank’s Intrinsic Assessment (IA) at BBB (low) and support assessment at SA3. A full list of rating actions is included at the end of this press release.

KEY RATING CONSIDERATIONS
In confirming the ratings of Liberbank, with a Stable Trend, DBRS Morningstar considers that, although the Bank is likely to be negatively affected by the economic disruption resulting from the coronavirus (COVID-19) pandemic, the Bank’s ratings are, at this time, sufficiently well positioned to incorporate this period of significant uncertainty. Liberbank continues to benefit from a robust franchise in certain regional markets in Spain, and in recent years has significantly reduced its Non-performing Assets (NPAs), as well as maintaining solid capital cushions over regulatory capital requirements. In addition, the Bank’s relatively low exposure to SMEs could mean the Bank is less vulnerable to deterioration in sectors that are likely to be severely affected in this crisis. The ratings also consider Liberbank’s sound funding position, underpinned by the Bank’s stable customer deposit base. .

DBRS Morningstar does expect pressure on the Bank’s risk profile, albeit partially mitigated by the Spanish government and the European authorities’ support measures in the short-term. We will continue to monitor the performance of the Bank’s asset quality. As of end-2019, the Bank’s ratio of NPAs, albeit reducing, was still high and above other domestic peers at 8.6%. Downward rating pressure would arise should the crisis be prolonged and the bank register a sizeable deterioration in asset quality. We also take into account that profitability, which is already low, is likely to be negatively impacted, most notably due to weaker lending growth, lower fees and commissions as well as higher loan loss provisions.

RATING DRIVERS
Given the current situation and the implications from the global pandemic, an upgrade or positive rating pressure is unlikely in the short-term. An upgrade would require the Bank to have a longer track record of consistently improving its profitability and risk profile.

The ratings could be downgraded if the Bank’s profitability experiences a material decline, potentially as a result of the Covid-19 pandemic. A downgrade could also occur if much of the progress in asset quality made by the bank so far were to be reversed.

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 Liberbank, S.A. are as follows: Franchise Strength – Good / Moderate; Earnings Power– Moderate / Weak; Risk Profile – Moderate / Weak; Funding & Liquidity – Good / Moderate; Capitalisation – Moderate.
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

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 Liberbank - Annual Reports (2015-2019), Liberbank - Quarterly Reports (2015-2019), Liberbank - 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/359652

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

Lead Analyst: Pablo Manzano, Vice President, Global FIG
Rating Committee Chair: Ross Abercromby, Managing Director, Global FIG
Initial Rating Date: 11 March 2014
Last Rating Date: 14 June, 2019

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