Morningstar DBRS Confirms CaixaBank’s Issuer Ratings at “A” / R-1 (low), Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed the credit ratings of CaixaBank S.A. (CaixaBank or the Group), including the Long-Term Issuer Rating of “A” and the Short-Term Issuer Rating of R-1 (low). All credit ratings have a Stable Trend. The Group’s Intrinsic Assessment (IA) remains at “A” and the Support Assessment at SA3. See the full list of credit ratings in the table at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS

The confirmation of CaixaBank’s credit ratings reflects its leading bancassurance franchise in Spain, where the Group enjoys significant market shares across its well-diversified business portfolio, and its international presence in Portugal through Banco BPI. The credit ratings also consider the Group’s improved profitability that has benefitted from strong net interest margin growth on the basis of higher interest rates, as well as contained operating expenses and cost of risk. Morningstar DBRS expects a large part of this improvement to be sustained going forward on the basis of a normalized interest rate environment. In addition, CaixaBank’s credit ratings are also underpinned by a solid capital position, with ample cushions over total minimum regulatory requirements, as well as sound funding and liquidity positions.

CaixaBank’s asset quality has remained resilient despite the challenging economic environment. However, Morningstar DBRS expects Non-Performing Loans (NPLs) to somewhat deteriorate as a result of the announced harmonization of accounting (IFRS 9) and prudential (European Banking Authority – EBA) definitions, as well as the full impact of the rapid rises in interest rates and inflation that usually take their toll with a delay. Nevertheless, Morningstar DBRS sees the Group’s strong earnings generation capacity and substantial management overlays provide the Group with flexibility to absorb any potential deterioration.

CREDIT RATING DRIVERS

An upgrade of CaixaBank’s Long-Term Issuer Rating would require an upgrade of the Kingdom of Spain’s credit rating coupled with further improvement in asset quality metrics whilst maintaining sound profitability and capital.

A downgrade of CaixaBank’s long-term credit ratings will be triggered by a downgrade of the Kingdom of Spain’s credit rating or if there is a material deterioration in the Group’s asset quality or capitalization.

CREDIT RATING RATIONALE

Franchise Combined Building Block Assessment: Strong/Good
CaixaBank is a leading Spanish bancassurance group that provides universal banking and insurance services to individuals, small and medium-sized enterprises (SMEs) and large corporations in Spain and Portugal, and one of the top ten banks in Europe by asset size at end-2023. The Group has a prominent domestic position with a market share of around 24% for loans and deposits, 20% for consumer lending and 31% in credit cards, as well as EUR 155 billion of Assets under Management (AuM) at end-2023. In Portugal, CaixaBank enjoys a market share of c. 12% for loans and deposits though Banco BPI, the fifth largest bank by total assets in Portugal at end-2023. The Group is also market leader in life insurance in Spain through its subsidiary VidaCaixa, with a total market share of 36% in the life insurance business measured by provisions.

Earnings Combined Building Block Assessment: Good
CaixaBank’s profitability has improved in 2023 driven by the strengthening of the franchise and higher business perimeter after the integration of Bankia in 2021, the impact of higher interest rates and the robust performance of the insurance business. The Group reported a net profit of EUR 4.8 billion in FY 2023, up 54% Year on Year (YoY), driven by a notable increase in net interest income on the back of low deposit betas while the Group’s asset side has mostly fully repriced. The Group’s Return on Equity (ROE), as calculated by Morningstar DBRS, rose to 13.8% in 2023 versus 9.1% in 2022.

CaixaBank’s efficiency ratio improved to 41% in 2023, down from 50% in 2022, as the strong growth in revenues substantially offset the higher operating expenses driven by higher inflation and IT and strategic investments. The net cost of risk, as calculated by Morningstar DBRS, was 35 basis points (bps), slightly higher than 25 bps in 2022 but still low and below the average for the European banking sector of 44 bps for 9M 2023 according to the EBA dashboard.

Risk Combined Building Block Assessment: Strong/Good
CaixaBank’s risk profile is adequate, supported by strong coverage ratios and continued progress in reducing its stock of Non-Performing Assets (NPA). CaixaBank’s Stage 3 loans remained flat YoY at EUR 10 billion at end-2023. In addition, Stage 2 loans, which are exposures whose credit risk has significantly increased, also remained broadly in line YoY. However, the Group’s Stage 3 and Stage 2 ratios rose to 2.9% and 8.2% respectively due to the decline of the total loan book in 2023. The Group’s total NPAs totaled EUR 14.1 billion at end-2023, down 5% YoY. Morningstar DBRS considers the total NPA portfolio to be well provisioned with a total coverage ratio of 61% at end-2023, resulting in a net NPA ratio of 1.6% at end-2023.

Funding and Liquidity Combined Building Block Assessment: Strong/Good
CaixaBank’s funding and liquidity profile is strong, underpinned by a robust franchise in Spain where the Group maintains leading market shares for deposits. The Group’s customer deposits, which are its main source of funding representing 84% of total non-equity funding at end-2023, have grown at a CGAR of 8.5% over the last decade, boosted both by organic and inorganic growth, to EUR 397.5 billion at end-2023. Morningstar DBRS views CaixaBank’s customer deposits as granular and stable with 64% guaranteed by the Deposit Guarantee Fund. The net loan-to-deposit (LTD) ratio, excluding repos, was sound at 88% at end-2023, compared to 90% at end-2022. CaixaBank also benefits from a well-diversified wholesale funding profile. The Group reported very strong liquidity ratios at end-2023, with an LCR of 215% and a Net Stable Funding Ratio (NSFR) of 143%, well above the average for the European banking sector.

Capitalisation Combined Building Block Assessment: Good
Morningstar DBRS views CaixaBank’s capital position as sound, supported by the Group’s ability to generate capital internally through retained earnings and consistent access to capital markets. CaixaBank reported a CET1 ratio of 12.4% at end-2023, down from 12.8% at end-2022 largely as result of the dividend distribution policy and Tier 1 coupon payments. Nevertheless, the Group’s capital buffer over minimum regulatory requirement remained substantial at 390 bps. CaixaBank’s total MREL ratio was 26.8% at end-2023, comfortably above its 2024 requirement of 24.3%. CaixaBank has a CET1 target of between 11.5% and 12%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/429167.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

There were no Environmental or Governance factors that had a significant or relevant effect on the credit analysis.

The Social factor impacts Caixabank as the ESG factors for the Kingdom of Spain are passed-through to Caixabank given the Group's credit rating is at the same level as the sovereign’s credit ratings (see credit rating drivers).

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Morningstar DBRS notes that this Press Release was amended on 15th March 2024 to correct the Combined Risk Building Block Assessment.

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (22 June 2023) https://www.dbrsmorningstar.com/research/415978/global-methodology-for-rating-banks-and-banking-organisations. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies

The sources of information used for this rating include Morningstar Inc. and Company Documents, CaixaBank 2023 and 2022 quarterly reports and presentations, CaixaBank’s annual reports (2018-2023), European Banking Authority (EBA) y European Central Bank (ECB) data. Morningstar DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

Morningstar DBRS does not audit the information it receives in connection with the credit 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. Morningstar DBRS’ outlooks and ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/429165.

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

Lead Analyst: María Jesús Parra Chiclano, Vice President - European Financial Institution Ratings
Rating Committee Chair: María Rivas, Senior Vice President, Sector Lead - European Financial Institution Ratings
Initial Rating Date: March 4, 2013
Last Rating Date: March 14, 2023

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