Morningstar DBRS Upgrades CaixaBank's Long-Term Issuer Rating to A (high); Changes Trend to Stable From Positive

DBRS Ratings GmbH (Morningstar DBRS) upgraded the credit ratings on CaixaBank, S.A. (CaixaBank or the Group), including the Long-Term Issuer Rating to A (high) from "A" and the Short-Term Issuer Rating to R-1 (middle) from R-1 (low). The trends on all credit ratings have been changed to Stable from Positive. The Group's Intrinsic Assessment is A (high), and its Support Assessment is SA3. See the full list of credit ratings in the table at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The upgrade of CaixaBank's credit ratings primarily reflects Morningstar DBRS' upgrade of the Kingdom of Spain's Long-Term Foreign and Local Currency Issuer Ratings at A (high) on 29 November 2024. CaixaBank's credit ratings were 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 at end-June 2024.

In addition, the credit rating action considers CaixaBank's much-improved profitability over the recent years and Morningstar DBRS' expectation that the Group will continue to report solid levels of profitability over the medium term on the back of the higher than pre-2022 interest rate environment, credit growth, high efficiency levels, and a moderate cost of risk. Finally, the credit ratings also take into account the Group's good and resilient asset quality as evidenced by the decline in Nonperforming Loans (NPLs) subsequent to the harmonisation of accounting (IFRS 9) and prudential (European Banking Authority) definitions as well as its significant coverage ratios and consistent cleanup of foreclosed assets (FAs).

CREDIT RATING DRIVERS
Morningstar DBRS would upgrade the bank's credit ratings if there were an upgrade to the Kingdom of Spain's sovereign credit ratings together with material improvement in the Bank's risk profile, while maintaining sound profitability and capital levels. A significant diversification in its franchise internationally would also be positive for the credit ratings.

Conversely, Morningstar DBRS would downgrade the credit ratings if there were a prolonged and material deterioration in profitability, asset quality, and/or capital position. A credit ratings downgrade would also be driven by a downgrade of the Kingdom of Spain's sovereign credit ratings.

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, and large corporations in Spain and Portugal. It is the largest bank in Spain and one of the top 10 banks in Europe by size with total assets of EUR 636 billion at end-September 2024. The Group has a significant domestic position with a market share of over 25% for loans and deposits and 30% for wealth management products and services with EUR 178 billion of Assets under Management at end-September 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 and holds a significant position in the health and other property & casualty insurance segment through SegurCaixa Adeslas. The Group's total combined market share in the insurance sector was 27% at end-September 2024.

Earnings Combined Building Block Assessment: Strong/Good
CaixaBank's profitability is underpinned by its leading banking franchise, a robust insurance business, and a diversified revenue structure, which helps to mitigate revenue volatility in a changing interest rate environment. The Group reported a net profit of EUR 4.253 million in the first nine months of 2024 (9M 2024), up 16% year-on-year (YOY), driven by the continuous positive momentum in net interest income. The Group's Return on Equity, as calculated by Morningstar DBRS, was 16.3% in 9M 2024, compared with 13.8% in 2023 and 9.1% in 2022. CaixaBank also reported a robust efficiency ratio of 39% compared with 41% in 2023, placing the Group as one of the most efficient banks in Europe, according to the latest European Banking Authority dashboard. In addition, the net cost of risk, as calculated by Morningstar DBRS, remained flat YOY at 28 basis points (bps), reflecting the good evolution of the domestic and Portuguese economies.

Risk Combined Building Block Assessment: Strong/Good
CaixaBank's risk profile is solid and resilient, supported by its strong coverage ratios and active management of nonperforming assets (NPAs), including asset sales. The Group's NPLs declined by 1.6% in the first nine months of 2024 to EUR 10.4 billion at end-September 2024, driven by a recovery in the corporate and household mortgage portfolios as well as two NPL portfolio sales. As a result, the Group's NPL ratio declined to 2.7% at end- September 2024. Stage 2 loans (exposures whose credit risk has significantly increased), substantially reduced by 18.2% since end-2023, reflecting the solid economy performance in Spain and Portugal. The Group's net FAs also declined by 3.8% in the first nine months of 2024, which resulted in a total net NPA ratio, as calculated by Morningstar DBRS, of 1.5% at end-September 2024.

Funding and Liquidity Combined Building Block Assessment: Strong/Good
CaixaBank's funding and liquidity profile is underpinned by its leading franchise in Spain, where the Group maintains substantial market shares in deposits, as well as the Group's recurrent access to wholesale funding. The Group's customer deposits increased 1.2% since end-2023 to represent 86% of total non-equity funding, as calculated by Morningstar DBRS, at end-September 2024. The net loan-to-deposit ratio (as calculated by Morningstar DBRS and excluding repos), was robust at 82% at end-September 2024. CaixaBank also benefits from a well-diversified wholesale funding profile as well as strong liquidity ratios at end-September 2024, with a 12-month trailing liquidity coverage ratio of 205% and a net stable funding ratio of 148%.

Capitalisation Combined Building Block Assessment: Good
CaixaBank's capital position is sound, underpinned by a comfortable capital cushion over minimum regulatory requirements, solid internal capital generation capacity and consistent access to capital markets. CaixaBank reported a CET1 ratio of 12.2% at end-September 2024, down 16 bps since end-2023 because of dividend distributions, AT1 coupon payments and executed and proposed new share buybacks. The Group's CET1 capital buffer over minimum regulatory requirement was 361 bps. CaixaBank has a CET1 target of between 11.5% and 12.5%. The Group's total MREL ratio was 28.3% at end-September 2024, comfortably above its current requirement of 24.7%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/444992.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental or Governance factors that had a significant or relevant effect on the credit analysis.

Credit rating actions on the Kingdom of Spain are likely to have an impact on this credit rating. ESG factors that have a significant or relevant effect on the credit analysis of Kingdom of Spain are discussed separately at https://dbrs.morningstar.com/issuers/15664.

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 Factors in Credit Ratings (13 August 2024), 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 Risk Factors in Credit Ratings (13 August 2024; 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://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 (2018-23), CaixaBank's semiannual report (H1 2023 and H1 2024), European Banking Authority 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://www.dbrsmorningstar.com/research/444990.

These credit ratings are 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: 4 March 2013
Last Rating Date: 8 August 2024

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