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 follows 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 in 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 https://www.dbrsmorningstar.com/research/403310/dbrs-morningstar-confirms-banco-santander-sas-long-term-issuer-rating-at-a-high-stable-trend

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. Santander Totta SA is owned by Santander Totta, SGPS (the Group) which is the entity at the highest level of prudential consolidation. Santander Totta SGPS is the third largest banking group in Portugal by assets, with around EUR 62 billion in total assets as of end-June 2022. The Group conducts the majority of its operations in Portugal, with most of the branch network and employee base located in the country. As of end-2021, the Bank recorded market shares for deposits at 14.4% whilst the market shares of loans stood at 17.9%.

Totta’s operating environment was affected by the COVID-19 pandemic, but the Bank’s financial figures have recovered and the Bank remains among the stronger performers in the Portuguese banking sector. In H1 2022, the Group recorded a Return on Equity (ROE) of 10.5%, with this supported by increased fee and commission income, as well as reductions in impairments and operating expenses. In 2021, the Group carried out a restructuring plan affecting its financial performance. In H1 2022 the execution of the restructuring plan contributed to a 15% YoY decline in operating expenses. Lastly, loan loss provisions declined from EUR 69 million in H1 2021 to a reversal of EUR 1 million in H1 2022.

Whilst the COVID-19 pandemic and the ongoing Russia-Ukraine crisis pose risks for asset quality in the medium to long term, this impact has yet to materialise in the Group´s asset quality metrics, which remains among the strongest in the Portuguese banking sector, with a 3.0% Stage 3 ratio, and Stage 3 coverage levels of 81% (including Stage 1,2 and 3) at FY 2021.

Totta’s funding profile is underpinned by its stable customer deposit base in Portugal. The Group’s customer resources grew around 5% YoY to EUR 47.8 billion in H1 2022, with customer deposits increasing around 7% YoY. The Group’s liquidity profile is sound, with the Liquidity Coverage Ratio (LCR) at 154.8% on a fully implemented basis at end-June 2022.

Capitalisation levels have decreased, as the Bank resumed dividend distribution in 2022 following a pause after the European Central Bank’s recommendation (ECB/2020/19) in March 2020. As of June 2022, Santander Totta SPGS reported a fully-loaded common equity tier 1 (CET1) ratio of 21.4% down from 21.8% in Q2 2021. The Group’s minimum capital requirement, as set out by the ECB under SREP, was 12.5% for Total Capital on a fully implemented basis.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Credit rating actions on Banco Santander SA are likely to have an impact on this credit rating.

There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 23, 2022) https://www.dbrsmorningstar.com/research/398692
Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022) https://www.dbrsmorningstar.com/research/396929/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 (April 4, 2022) https://www.dbrsmorningstar.com/research/394683/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support

The sources of information used for this rating include Morningstar Inc. and Company Documents, Santander and Santander Totta 2021 & H1 2022 Presentations, Santander and Santander Totta 2021 & H1 2022 Press Releases, Santander and Santander Totta 4Q 20201 & 2Q 2022 Report, and Santander and Santander Totta 2021 Annual Accounts. 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally 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: https://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/403596

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 6, 2021

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