DBRS Morningstar Confirms Issuer Ratings of Santander Totta at “A” / R-1 (low), Stable trend

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Banco Santander Totta SA (Totta or the Bank), following the confirmation of the ratings of its parent, Banco Santander SA (Santander or the Parent). DBRS Morningstar has confirmed Totta’s Long-Term Issuer Rating at “A”, and its Short-Term Issuer Rating at R-1 (low). The trend on all of the ratings remains Stable, in line with the trend on Santander’s Issuer Ratings. Totta’s support assessment remains SA1. DBRS Morningstar has also discontinued the ratings on Santander Totta London Branch, as the Bank has closed this branch. A full list of rating actions is included at the end of this press release.

KEY RATING CONSIDERATIONS

The confirmation of the ratings follow DBRS Morningstar’s confirmation of Santander’s A (high) / R-1 (middle) Issuer Ratings, with a Stable trend. DBRS Morningstar maintains its SA1 support assessment for Totta, which implies strong and predictable support from the Parent. As a result, Totta’s ratings will generally move in tandem with Santander’s ratings. The SA1 designation considers Totta’s important role as a core component of Santander’s international franchise and DBRS Morningstar’s expectation that Santander has the willingness and ability to support Totta, if required.

RATING DRIVERS

An upgrade would be linked to an upgrade of Santander’s Issuer Ratings.

A downgrade of Santander’s ratings would have a negative impact on Totta’s ratings. Any indication of a reduction of support from the Parent could impact DBRS Morningstar’s support assessment, and potentially also have a negative impact on Totta’s ratings.

For more information on the rating drivers of Santander, see the separate press release (Link to the Santander´s PR).

RATING RATIONALE

Santander Totta SA is a commercial bank in Portugal owned by Santander that provides universal banking services to individuals, small and medium-sized enterprises and large corporations. Following the integration of Banco Popular Portugal, DBRS Morningstar views the Bank’s franchise as having further solidified its already strong market position in Portugal.

The COVID-19 economic shutdown led to a significant deterioration in Santander Totta’s operating environment. However, as of end-June 2021, the COVID-19 impact on Santander Totta´s financial figures has been limited. The Bank was able to reduce its Non-Performing Loan (NPL) ratio and increased its regulatory capital ratios, mainly through retained earnings due to the to the recommendation by the European Central Bank not to distribute dividends. In addition, liquidity metrics remained strong, whilst the Group remained profitable posting EUR 296 million net attributable profit in 2020Y and EUR 81 million in H1 2021.

Nevertheless, earnings were affected in 2020 and in H1 2021 by high loan loss provisions related to COVID-19 as well as extraordinary provisions related to a new restructuring plan to reduce the branch network and staff during H1 2021. DBRS Morningstar considers that the loan moratoria are limiting past-due situations, and preventing the deterioration of Santander Totta’s loan book. However, DBRS Morningstar expects that Totta’s asset quality profile will suffer a manageable deterioration during 2021-22, in particular, after the expiration of the loan moratoria with the bulk of it taking place at the end of September 2021.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (July 19, 2021) https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations.
Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021) https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings
and the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 14, 2021) https://www.dbrsmorningstar.com/research/372344/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 Company Documents, Santander and Santander Totta 2020 & H1 2021 Presentations, Santander and Santander Totta 2020 & H1 2021 Press Releases, Santander and Santander Totta 4Q 2020 & 2Q 2021 Report, Santander and Santander Totta 2020 Annual Accounts, European Banking Authority Risk Dashboard, Bank of Spain 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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/385513

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Pablo Manzano, Vice President - Global FIG
Rating Committee Chair: Elisabeth Rudman , Managing Director, Head of European FIG - Global FIG
Initial Rating Date: July 3, 2017
Last Rating Date: October 2, 2020

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