Morningstar DBRS Upgrades Bankinter's Long-Term Issuer Rating to "A", Trend Revised to Stable

DBRS Ratings GmbH (Morningstar DBRS) upgraded the Long-Term Issuer Rating of Bankinter S.A. (Bankinter or the Bank) to "A" from A (low), the Long-Term Senior Debt and Long-Term Deposits to "A" from A (low), the Senior Non-Preferred Debt to A (low) from BBB (high), and the Subordinated Debt to BBB (high) from BBB. The trends on all long-term credit ratings have been revised to Stable from Positive. Morningstar DBRS also confirmed all Short-Term credit ratings on Bankinter at R-1 (low). All short-term credit ratings have Stable trends. The Bank's Intrinsic Assessment is "A" and the 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 upgrades of Bankinter's Long-Term credit ratings reflect the Bank's enhanced and resilient profitability over recent years and Morningstar DBRS' expectation that the Bank will continue to report robust levels of profitability on the back of the higher-than-pre-2022 interest rate environment, credit growth, business diversification, high efficiency levels, and controlled cost of risk. The upgrades also consider the Bank's strong risk profile underpinned by its sound risk management practices, its diversified loan book, and strong asset quality metrics, supported by robust coverage ratios, despite the increase in nonperforming loans (NPLs) because of the larger loan book and tighter financial conditions.

In addition, Bankinter's credit ratings also consider the Bank's strong capital position, with ample cushions over total minimum regulatory requirements, and its improved funding and liquidity profile over the recent years underpinned by a large and growing customer deposit base and an adequate wholesale funding mix.

The Bank's Intrinsic Assessment of "A" has been assigned at the midpoint of the Intrinsic Assessment Range, as Morningstar DBRS views Bankinter's credit fundamentals and performance as commensurate with those of similarly rated peers.

CREDIT RATING DRIVERS
Given the recent credit ratings action, an upgrade is unlikely in the short-term. Over the medium-term, an upgrade of the credit ratings would require a substantial improvement in asset quality whilst maintaining a sustained record of robust profitability and solid capital levels.

Conversely, Morningstar DBRS would downgrade the Bank's credit ratings in the event of a prolonged and material deterioration in profitability, asset quality, and/or capital position.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Good
Bankinter is a Spanish universal bank with total consolidated assets of EUR 122 billion at the end of 2024. It provides retail and commercial banking services to individuals, small and medium-size enterprises, and corporates in Spain and Portugal, mortgages and consumer loans in Ireland, and private banking and asset wealth management in Spain and Portugal. Bankinter recently obtained the deposit taker license in Ireland and will start expanding its product offering in H2 2025 leveraging its diversified banking portfolio.

Earnings Combined Building Block (BB) Assessment: Strong/Good
Bankinter reported a net profit of EUR 953 million in FY2024, up 12.8% year over year (YOY), driven by the continuous positive momentum in core revenues, lower regulatory levies, and contained cost base. Morningstar DBRS calculated the Bank's return on equity to be 17.0% in FY2024 compared with 16.5% in 2023 and 11.5% in 2022. Net interest income grew 2.9% YOY in FY2024 despite peaking in Q2 2024, on the back of credit growth in all geographies and segments where the Bank operates and an efficient net interest margin management. In addition, the Bank has a well-diversified fee structure that contributed approximately 25% of total gross operating income in 2024 and helps to mitigate revenue volatility in a changing interest rate environment. The Bank continued to report top-class efficiency ratios with a cost-to-income ratio (as calculated by Morningstar DBRS) of 36% in FY2024. Net cost of risk remained flat YOY at 47 basis points (bps) in FY2024.

Risk Combined Building Block (BB) Assessment: Strong/Good
Bankinter's risk profile is strong underpinned by sound risk management, its diversified loan book, and solid provisioning level. Nevertheless, Bankinter's NPLs have grown in recent years reflecting the growth in the overall lending book, and to a lesser extent, the toll that higher inflation and higher financing costs have taken on borrowers, especially corporates and most recently consumer finance borrowers. Nevertheless, the Bank has reinforced its provisioning level over these years leading to a net NPL ratio of 0.7% at the end of 2024. Bankinter also holds a small portfolio of legacy foreclosed assets with a net exposure of c. EUR 20 million at the end of 2024. As a result, Bankinter's net nonperforming asset ratio was 0.7% at the end of 2024.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong/Good
Bankinter's funding and liquidity profile is solid supported by its large and growing customer deposit base, its adequate wholesale funding, and its good liquidity position. Customer deposits are Bankinter's largest source of funding, accounting for 80% of total non-equity funding at the end of 2024 followed by deposits with credit institutions. The Bank's customer deposits kept growing in 2024 (9.3% YOY), which resulted in a net loan-to-deposit ratio (as calculated by Morningstar DBRS and excluding repos) of 89% at the end of 2024. Bankinter reported a strong 12-month trailing liquidity coverage ratio of 188% at the end of 2024 and a net stable funding of 145% at the end of September 2024.

Capitalisation Combined Building Block (BB) Assessment: Good/Moderate
Bankinter's capitalization 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 12.41% at the end of 2024, 11 bps higher than at the end of 2023, driven by internal earnings generation despite the increase in risk-weighted assets (RWAs) due to business growth. The Bank's capital buffer over minimum regulatory requirements remained very strong at 440 bps. Bankinter reported a total MREL ratio of 24.04% of its RWAs at the end of 2024, above its minimum requirement for 2025 of 20.31% of its RWAs.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/447539.

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 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 Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781) in its consideration of ESG factors.

The following methodology has also been applied:

Morningstar DBRS Global Corporate Criteria (3 February 2025)
https://dbrs.morningstar.com/research/447186/morningstar-dbrs-global-corporate-criteria.

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, Bankinter's 2024 and 2023 quarterly reports and presentations, Bankinter's annual reports (2018-23), Bankinter's semiannual reports (H1 2023 and H1 2024), and 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/447541.

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: Marcos Alvarez, Managing Director, Global Financial Institution Ratings
Initial Rating Date: 15 November 2012
Last Rating Date: 11 July 2024

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