Morningstar DBRS Changes Trends on CaixaBank's Credit Ratings to Positive from Stable; Confirms All Credit Ratings

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on 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). The trends on all credit ratings have been revised to Positive from Stable. The Group's Intrinsic Assessment (IA) remains at "A" and its Support Assessment is at SA3. See the full list of credit ratings in the table at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The change to the trends to Positive from Stable primarily reflects Morningstar DBRS' confirmation of the Kingdom of Spain's Long-Term Foreign and Local Currency Issuer ratings at "A" and the change in trend to Positive from Stable on May 31, 2024. CaixaBank's credit ratings are currently constrained by the Kingdom of Spain's credit rating as the Group is predominantly a domestic bank with more than 93% of its total assets located in Spain and more than 90% of its revenues generated domestically.

In addition, the Positive trend considers the Group's good and resilient asset quality as evidenced by the decline in Non-Performing Loans (NPLs) subsequent to the harmonisation of accounting (IFRS 9) and prudential (European Banking Authority - EBA) definitions. Finally, the Positive trend also takes into account the Group's further improved profitability on the back of a resilient net interest margin (NIM), credit growth, and well-contained operating costs and cost of risk.

CREDIT RATING DRIVERS
An upgrade of CaixaBank's Long-Term Issuer Rating would require an upgrade of the Kingdom of Spain's sovereign credit rating, whilst requiring the bank to maintain sound profitability, risk profile, and capital levels.

A downgrade of CaixaBank's Long-Term Issuer Rating, although unlikely in the short term given the current trend, would be triggered if there is a material deterioration in the Group's asset quality or capitalisation and/or if there is a downgrade of the Kingdom of Spain's sovereign rating.

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 more than 20 million individuals, small and medium-size enterprises (SMEs), and large corporations in Spain and Portugal. It is the largest bank in Spain and one of the top ten banks in Europe in terms of asset size; about EUR 630 billion at end-June 2024. The Group has a prominent domestic position with a market share of around 24% in loans and deposits, 31% in credit cards, 34% in wealth pension plans, and EUR 168 billion in Assets under Management (AuM) at end-June 2024. In Portugal, CaixaBank operates through its subsidiary Banco BPI, which is the fifth-largest bank by total assets in Portugal. The Group is also the market leader in life insurance in Spain through its subsidiary VidaCaixa, with a total market share of 36% in the life insurance business (as measured by provisions).

Earnings Combined Building Block Assessment: Strong/Good
CaixaBank's profitability has improved every quarter in 2024 driven by a resilient net interest income (NII), which is benefiting from an active and effective management of the client margin as well as a growing credit volume, good performance of fees and insurance business, as well as well-contained operating costs and net cost of risk. The Group reported a net profit of EUR 2.7 billion in H1 2024, up 25% year on year (YOY), largely driven by a substantial increase in NII on the back of higher interest rates compared with H1 2023. The Group's Return on Equity (ROE), as calculated by Morningstar DBRS, rose to 16.5% in H1 2024 versus 13.9% in H1 2023. CaixaBank's cost-to-income ratio was 39% in H1 2024, improving from 43% a year ago, placing the Group as one of the most efficient banks in Europe, according to the latest EBA dashboard. The net cost of risk, as calculated by Morningstar DBRS, was 28 basis points (bps) in H1 2024, 2 bps higher than in H1 2023.

Risk Combined Building Block Assessment: Strong/Good
CaixaBank's risk profile is solid and resilient, supported by its strong coverage ratios and active management. Upon completion of the Group's harmonisation of accounting and prudential definitions of NPLs, CaixaBank's stock of NPLs declined 3.0% QOQ in Q2 2024 and is down 0.5% since end-2023 on the back of two NPL portfolio sales. As a result, the Group's NPL ratio slightly declined to 2.7% at end-June 2024, 6 bps lower than end-2023. Stage 2 loans, which are exposures whose credit risk has significantly increased, declined 16.2% since end-2023, demonstrating the more benign economic scenario for 2024 than initially expected. The Group's net Non-Performing Assets totaled EUR 5.9 billion at end-June 2024, resulting in a net NPA ratio of 1.5%.

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 in deposits. The Group's customer deposits increased 6.3% since end-2023 to represent 85% of total non-equity funding at end-June 2024. The net loan-to-deposit (LTD) ratio, excluding repos, was robust at 84% at end-June 2024. CaixaBank also benefits from a well-diversified wholesale funding profile as well as strong liquidity ratios at end-June 2024, with an LCR of 218% and a Net Stable Funding Ratio (NSFR) of 146%.

Capitalisation Combined Building Block Assessment: Good
Morningstar DBRS views CaixaBank's capital position as sound, supported by the Group's improved internal capital generation capacity through retained earnings as well as consistent access to capital markets. CaixaBank reported a CET1 ratio of 12.2% at end-June 2024, down from 12.4% at end-2023 largely as result of the dividend distribution policy, Tier 1 coupon payments, as well as the deduction of the impact of the third and fourth share buyback programmes, the latest of which was started on 31 July but was already deducted from the CET1 ratio reported at end-June 2024. The Group's capital buffer over minimum regulatory requirement remained substantial at 358 bps. CaixaBank has a CET1 target of between 11.5% and 12%. The Group's total MREL ratio was 26.9% at end-June 2024, above its 2024 requirement of 24.3%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/437656.

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/427030/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 (4 June 2024) https://www.dbrsmorningstar.com/research/433881/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/427030/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 these credit ratings include Morningstar Inc. and Company Documents, CaixaBank 2024 and 2023 quarterly reports and presentations, CaixaBank's annual reports (2018-2023), European Banking Authority (EBA) and European Central Bank (ECB) data. Morningstar DBRS considers the information available to it for the purposes of providing these 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 rating assumptions can be found at: https://www.dbrsmorningstar.com/research/437657.

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: William Schwartz Senior Vice President - Global Fundamental Ratings, Credit Practices
Initial Rating Date: March 4, 2013
Last Rating Date: March 11, 2024

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