Morningstar DBRS Confirms Bankinter's Long-Term Issuer Rating at A (low), Trend Remains Positive

DBRS Ratings GmbH (Morningstar DBRS) confirmed the Long-Term Issuer Rating of Bankinter S.A. (Bankinter or the Bank) at A (low) and the Short-Term Issuer rating at R-1 (low). The trend on all Long-Term ratings remains Positive, whereas the trend on all Short-Term ratings is Stable. Morningstar DBRS has also maintained the Intrinsic Assessment (IA) of the Bank at A (low) 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 credit rating confirmations and positive trends reflect the continued positive momentum in the Bank's earnings supported by higher interest rates and loan growth. Morningstar DBRS expects that the improvement in profitability will be largely sustained in the medium term on the basis of a normalized interest rate environment, growing business volume, and good diversification in revenue sources, while operating efficiency will remain strong. The credit ratings also consider the Bank's solid risk profile underpinned by sound risk management practices and strong-asset metrics, despite recent increases in Non-Performing Loans (NPLs) as a result of the tighter financial conditions. Morningstar DBRS expects the Bank's credit-quality performance to remain resilient despite the higher interest rates.
Bankinter's capital position is solid, with ample cushions over total minimum regulatory requirements, and its funding and liquidity profile is good, underpinned by a large and growing customer deposit base. The credit ratings also incorporate Bankinter's solid franchise in Spain and to a lesser extent, its business diversification in Portugal and Ireland.

CREDIT RATING DRIVERS
Morningstar DBRS would upgrade the Long-Term ratings if the Bank continues to demonstrate sustained profitability and robust asset-quality ratios in the following quarters while maintaining strong funding and capitalisation.

Conversely, the Positive trend could be revised to Stable if the Bank's profitability experiences a sustained and significant deterioration or if asset quality materially worsens. Additionally, Morningstar DBRS would downgrade the credit ratings if the Bank's capital position or funding and liquidity profile significantly deteriorates.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Good
Bankinter is the fifth largest bank in Spain with total consolidated assets of EUR 113 billion at the end of March 2024. It provides retail and commercial banking services to individuals, Small-and-Medium Size Enterprises (SMEs) and corporates in Spain and Portugal, mortgages and consumer loans in Ireland, and private banking and asset wealth management in Spain and Portugal. In 2023 the Bank announced the creation of a joint venture (JV) with Sonae SGPS S.A. to provide open-market consumer finance services in Portugal . In 2024 Bankinter announced the integration of its subsidiary EVO Banco S.A. within Bankinter in order to achieve larger cost and revenues synergies as well as to enhance customer experience, and the expansion of its Bankinter Ireland business to become a deposit taker and expand its product offering, leveraging its diversified banking portfolio.

Earnings Combined Building Block (BB) Assessment: Strong/Good
Bankinter's profitability significantly improved year-over-year (YOY) in 2023 benefitting from the repricing of assets at higher interest rates as well as new business volume growth. Bankinter reported a net profit of EUR 845 million in F2023, up 51% YOY, driven by a significant growth in net interest income (NII). The Return on Equity (ROE) (as calculated by Morningstar DBRS), improved to 16.5% in 2023, up from 11.5% in 2022. In Q1 2024, the Bank reported a net profit of EUR 201 million, up 25% quarter over quarter (QOQ) driven by lower seasonal operating costs and fewer loan loss provisions, which translated into a ROE of 20.2% in Q1 2024. Bankinter's recurrent efficiency ratio, as calculated by Morningstar DBRS, was 37% in 2023 and 35% in Q1 2024, down from 44% in 2022. The Bank's net cost of risk, as calculated by Morningstar DBRS, albeit contained, increased to 46 basis points (bps) in 2023 versus 37 bps in 2022. In Q1 2024, the net cost of risk improved to 43 bps in Q1 2024.

Risk Combined Building Block (BB) Assessment: Strong/Good
Bankinter has a conservative risk profile, underpinned by sound risk management, and robust asset quality with low levels of NPLs and solid coverage level. Nevertheless, Bankinter's NPLs have grown since YE2021, reflecting the toll that the pandemic, higher inflation, and higher financing costs have taken on borrowers, especially corporates and, most recently, consumer finance households. In response, the Bank has significantly reinforced its provisioning level, which has led to a net NPL ratio of 0.9% for end-Q1 2024, compared with an average of 1.1% for European peers and 1.6% for Spanish banks at YE2023. Bankinter also holds a small portfolio of legacy Foreclosed Assets (FAs) with a net exposure of approximately EUR 27 million for Q1 2024. Including FAs, Bankinter's net Non Performing Asset (NPA) ratio was 0.9% for Q1 2024.

Funding and Liquidity Combined Building Block (BB) Assessment: Good
Bankinter's funding and liquidity profile is good and has significantly improved over the years supported by a growing customer deposit base, its well-diversified wholesale funding, and its good liquidity position. Customer deposits are Bankinter's largest source of funding, accounting for 81% of total non-equity funding for end-Q1 2024 followed by deposits with credit institutions. The Bank has significantly grown its customer deposits since YE2012 to EUR 80.1 billion at end-Q1 2024 (11.0% Compound Annual Growth Rate) which resulted in a much-improved net loan-to-deposit (LTD) ratio. The net LTD (as calculated by Morningstar DBRS and excluding repos) stood at 93% for Q1 2024, compared with 177% at YE2012. The Bank's issued debt is well diversified by industries and maturity profile. Bankinter reported a strong liquidity coverage ratio (LCR) of 206% and a net stable funding ratio (NSFR) of 141% at YE2023.

Capitalisation Combined Building Block (BB) Assessment: Good/Moderate
Bankinter's capitalisation is solid, underpinned by its strong internal capital generation, its access to the capital markets as well as its conservative risk profile, as demonstrated by the very low Pillar 2 Requirement imposed on the Bank (the fourth lowest among European banks). Bankinter reported a CET1 ratio of 12.46% for Q1 2024, 60 bps higher than at YE2022, mostly driven by internal earnings generation despite the negative effect of the temporary financial tax and the negative impact from the creation of the JV with Sonae. The Bank's capital buffer over minimum regulatory requirements remained strong at 466 bps. Bankinter reported a total Minimum Requirement for own funds and Eligible Liabilities (MREL) ratio of 22.6% at YE2023, above its 2024 requirement of 18.3%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at: https://dbrs.morningstar.com/research/436017.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

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

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://dbrs.morningstar.com/research/427030.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024), https://dbrs.morningstar.com/research/433881/. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://dbrs.morningstar.com/research/427030 in its consideration of ESG factors.

The following methodologies have also been applied:
Morningstar DBRS Global Corporate Criteria (15 April 2024)
https://dbrs.morningstar.com/research/431186/morningstar-dbrs-global-corporate-criteria .

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

The sources of information used for these credit ratings include Morningstar Inc. and company documents, the Q1 2024, 2023, and 2022 quarterly reports and presentations, Bankinter's annual reports (2013-23), European Banking Authority (EBA) and European Central Bank (ECB) data. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings 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 credit 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 credit rating assumptions can be found at: https://dbrs.morningstar.com/research/436016.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Maria Jesus Parra, Vice President - European Financial Institution Ratings
Rating Committee Chair: Elisabeth Rudman, Managing Director - Global Financial Institution Ratings
Initial Rating Date: November 15, 2012
Last Rating Date: July 12, 2023

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