Press Release

Morningstar DBRS Changes Trends on Grupo Cooperativo Cajamar's Credit Ratings to Positive from Stable and Confirms Long-Term Credit Ratings at BBB (low)

Banking Organizations
November 13, 2024

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on Grupo Cooperativo Cajamar (GCC, or the Group); Cajamar Caja Rural, Sociedad Cooperativa de Credito (Cajamar); and Banco de Crédito Social Cooperativo, S.A. (BCC), including the Long-Term Issuer Rating of BBB (low) and the Short-Term Issuer Rating of R-2 (middle). Morningstar DBRS also changed the trends on all credit ratings to Positive from Stable. The Group's Intrinsic Assessment is BBB (low) and its Support Assessment is SA3. Cajamar and BCC's Support Assessments are SA1. See the full list of credit ratings at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The trend change to Positive from Stable reflects the Group's significantly improved profitability over the recent quarters and Morningstar DBRS' view that GCC is adequately positioned to largely sustain this enhancement over the long term on the back of the higher than pre-2022 interest rate environment, credit growth, contained operating costs, and a normalised cost of risk following the large balance sheet clean-up ongoing especially since 2021. Incorporated into the Morningstar DBRS' view is an expectation that credit losses related to the Valencia region flooding will be modest and manageable. The Positive trends also consider the Group's continuous progress in reducing total Non-Performing Assets (NPAs) and maintaining robust coverage ratios as well as improved capitalization with large capital buffers over minimum capital requirements.

GCC's credit ratings also take into account its stable customer deposit base underpinned by its cooperative franchise in Spain, especially in the areas of Almeria, Murcia, and Castellon, where the Group enjoys significant and, dominant market shares.

CREDIT RATING DRIVERS
An upgrade of the credit ratings would require GCC to sustain a record of improved profitability whilst maintaining its risk profile and capital levels.

Given the Positive trend, a downgrade of the credit ratings is unlikely. The trend could return to Stable if profitability and asset quality materially deteriorate.

BCC and Cajamar's credit ratings are equalised with the credit ratings of GCC. As a result, any positive or negative actions on GCC's credit ratings would be mirrored in BCC and Cajamar's credit ratings.

CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Moderate
GCC is a large Spanish cooperative group that had EUR 61 billion of total assets at end-June 2024. The Group has a national footprint although it is mainly concentrated in Almeria, Murcia, and Castellon where it has meaningful regional loan market shares of around 43%, 19%, and 14%, respectively. However, nationwide, the Bank's market share for total loans and deposits is more modest at 3.0%. GCC also enjoys significant market shares for agriculture loans of around 16% in Spain. GCC is structured as an Institutional Protection Scheme (IPS), which includes 19 credit cooperatives and BCC. Cajamar is the largest member of the Group and represents around 90% of deposits and loans of the Group. GCC operates as one entity for regulatory and accounting purposes.

Earnings Combined Building Block Assessment: Moderate/Weak
Profitability has been one of the Group's key challenges. However, the Group has substantially improved its profitability over recent quarters and is adequately positioned to largely sustain this improvement over the long term. GCC reported a net profit of EUR 174 million in H1 2024, up from EUR 60 million in H1 2023 and EUR 127 million in 2023, benefitting from higher net interest income, good growth in fees and commissions, and lower regulatory levies. The Group's return on equity (ROE), as calculated by Morningstar DBRS, was 8.5% in H1 2024, significantly improved from 3.3% in 2023 and 2.1% in 2022.

Risk Combined Building Block Assessment: Moderate
The Group's risk profile has significantly improved over the past decade, and especially since 2021, driven by the active balance sheet de-risking, strong provisioning effort and enhanced underwriting processes. As a result, the Group's Net NPA ratio was 1.5% at end-June 2024 compared with the peak of 14.5% at end-2014. In addition, the composition of Non-Performing Loans (NPLs) has also changed over time, with fewer older vintage and increase NPLs that are not past due or due for less than 90 days. This has led to an improvement in the overall average recovery rate of the NPL portfolio. Following the Valencia floods, Morningstar DBRS expects some increase in the level of NPLs and Stage 2 loans although GCC's exposure to the affected area is limited and mostly mortgage related. In addition, the Group's increased earnings generation capacity and the stock of reserves the Group holds should help it absorb any potential losses that could arise without experiencing any significant impact on capital.

Funding and Liquidity Combined Building Block Assessment: Good/Moderate
The Group's funding and liquidity position is supported by its large, granular, and resilient customer deposit base underpinned by its cooperative business model. As a result, customer deposits, which are 68% covered by the Deposit Guarantee Fund (DGF), are GCC's largest source of funding and the Group's net loan-to-deposit ratio (as calculated by Morningstar DBRS and excluding repos and retail covered bonds) stood at 82% at end-June 2024. GCC's access to wholesale markets is adequate and relatively diversified by instrument. The Group's liquidity profile is solid with ample liquid assets and capacity to issue covered bonds that represent 1.0x of total customer deposits not covered by the DGF and debt maturities up to five years. In addition, GCC reported a strong liquidity coverage ratio of 223% and a net stable funding ratio of 152% at end-June 2024.

Capitalisation Combined Building Block Assessment: Moderate
Morningstar DBRS considers GCC's capitalisation as adequate supported by ample capital buffers over minimum regulatory requirements. The Group reported a regulatory CET1 capital ratio of 13.8% at end-June 2024, 20 bps higher than at end-2023, reflecting GCC's improved profitability. The Group's capital buffer over minimum CET1 capital requirement stood at 534 basis points (bps). The Group estimates that the implementation of CRD IV in 2025 will have a negative capital impact of 20-25 bps, which Morningstar DBRS views as easily manageable given GCC's large capital buffer and improved earnings generation.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/442929

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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 Factors in Credit Ratings (13 August 2024) at https://dbrs.morningstar.com/research/437781.

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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

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, GCC's presentations, GCC's annual and semiannual reports (2019-H1 2024), GCC's quarterly reports (2019-Q2 2024), GCC's 2023 sustainability report, European Banking Authority data, and European Central Bank 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/442930

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: William Schwartz, Senior Vice President - Global Fundamental Ratings, Credit Practices
Initial Rating Date: 26 November 2020
Last Rating Date: 17 November 2023

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For more information on this credit or on this industry, visit dbrs.morningstar.com.

Ratings

Banco de Credito Social Cooperativo, S.A.
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:BBB (low)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:R-2 (middle)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:BBB (low)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:BBB (low)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:BB (high)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:R-2 (middle)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:R-2 (middle)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:BB
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
Cajamar Caja Rural, Sociedad Cooperativa de Credito
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:BBB (low)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:R-2 (middle)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:BBB (low)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:BBB (low)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:R-2 (middle)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:R-2 (middle)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
Grupo Cooperativo Cajamar
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:BBB (low)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • Date Issued:Nov 13, 2024
  • Rating Action:Trend Change, Confirmed
  • Ratings:R-2 (middle)
  • Trend:Pos
  • Rating Recovery:
  • Issued:EUU
  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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