Press Release

DBRS Upgrades Banco Bilbao Vizcaya Argentaria, S.A. Senior Debt to A (high); Stable trend

Banking Organizations
April 12, 2018

Summary

DBRS Ratings Limited (DBRS) has upgraded Banco Bilbao Vizcaya Argentaria, S.A. (BBVA or the Group)’s Long-Term Issuer ratings to A (high) from A and the Short-Term Issuer rating to R-1 (middle) from R-1 (low). The Long Term Critical Obligations rating was also upgraded to AA (low) and the Short Term Critical Obligations rating was confirmed at R-1 (middle). The trends on all ratings is stable. The Group’s intrinsic assessment (IA) was upgraded to A (high). The support assessment remains SA3 and as such, the Long-Term ratings are positioned in line with the Group’s IA. See the full list of ratings at the end of this press release.

DBRS Ratings Limited (DBRS) has upgraded Banco Bilbao Vizcaya Argentaria, S.A. (BBVA or the Group)’s Long-Term Issuer ratings to A (high) from A and the Short-Term Issuer rating to R-1 (middle) from R-1 (low). The Long Term Critical Obligations rating was also upgraded to AA (low) and the Short Term Critical Obligations rating was confirmed at R-1 (middle). The trends on all ratings is stable. The Group’s intrinsic assessment (IA) was upgraded to A (high). The support assessment remains SA3 and as such, the Long-Term ratings are positioned in line with the Group’s IA. See the full list of ratings at the end of this press release.

KEY RATING CONSIDERATIONS
The upgrade of BBVA’s long-term ratings follows the rating action on the Kingdom of Spain. On April 6, 2018, DBRS upgraded the Long-Term Foreign and Local Currency Issuer Rating of the Kingdom of Spain to A with stable trend from A(low) with stable trend. Following this rating action, BBVA’s Long-Term Issuer Rating remains positioned one notch above the Spanish sovereign rating, reflecting the benefits of its international diversification.

Today’s upgrade of BBVA’s Long and Short-term Issuer ratings reflects the Group’s material improvement in asset quality and performance in Spain, and takes into account the Group’s robust funding and capital position, and resilient international franchise strength, which should continue to support sound organic capital generation. The upgrade of BBVA’s ratings also reflects DBRS’s view that given its franchise strength in Spain, the Group will continue to benefit from the pick-up in the Spanish economy and the opportunities that the improved position of the sovereign should bring.

RATING DRIVERS
Positive rating pressure to the Long-Term Issuer rating would require an improvement of the rating of the sovereign of the Kingdom of Spain combined with continued improvement in core domestic profitability and asset quality, as well as maintaining solid performance in its international businesses.

Negative rating pressure to the Long-Term Issuer rating, although unlikely in the medium to short-term, could arise from a sharp deterioration in BBVA’s risk profile together, with weakening profitability and capitalisation. A material deterioration in the Group’s international businesses could put downward pressure on BBVA’s ratings as well, as this would reduce the benefit of the Group’s geographical diversification.

RATING RATIONALE
DBRS views the Group’s franchise as strong, as reflected in its leading franchise position in Spain and its strong international diversification and leading positions in Mexico and Turkey and growing presence in South America and the U.S. BBVA’s highly diversified business model has continued to sustain the Group’s earnings, leading, in 2017, to the strongest results since 2010 of EUR 3.5 billion, despite an impairment booked on the Group’s stake in Telefonica. The results were primarily driven by a strong reduction in loan loss provisions in Spain, and sound performance in its international businesses. Revenue growth in BBVA’s emerging markets continued to offset the continuing pressure on core revenues in Spain from low interest rates. Revenues generated outside of its home market totalled 76% of net attributable profit (excluding corporate centre) in 2017. Efficiency levels, have remained strong at the Group level, despite the Group’s expansionary strategy in emerging markets and high investment in technology, with a cost-to-income ratio of around 50% in 2017.

Asset quality has continued to benefit from improved economic conditions in the Group’s main markets, especially in Spain. BBVA’s Non-performing assets (NPA) ratio, which includes Non-performing loans (NPLs) and foreclosed assets (FAs) represented 7.5% of the Group’s gross loans and FAs at end-2017, improved from 8.6% a year earlier, reflecting good progress in the reduction of NPAs YoY. BBVA announced on November 29, 2017, that it agreed to sell an 80% stake in a real estate company holding its foreclosed assets to Cerberus. The real estate company had foreclosed real estate assets representing a gross book value of around EUR 13 billion. The transaction is expected to be closed in 2H18. Including this sale, DBRS estimates the Group’s pro-forma NPA ratio to be around 4.5% at end-2017, a significant reduction from 8.6% ratio at end-2016.

DBRS views BBVA as maintaining a solid liquidity and funding position. The Group’s net loans to deposit ratio (LTD, ex repos and covered bonds included in deposits) has remained at a good level of 103.4% at end-2017 despite strong loan growth in certain geographies. BBVA has continued to strengthen its capital base through retained earnings and is conformably above minimum regulatory requirements, also helped by issuance of Tier 2 and AT1 instruments in 2017. At end-2017, the CET1 phased-in ratio stood at 11.7% and total fully loaded CET1 ratio at 11.1%.

The Grid Summary Grades for Banco Bilbao Vizcaya Argentaria, S.A. are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Strong; Risk Profile – Strong/Good; Funding & Liquidity – Strong; Capitalisation – Strong.

Notes:
All figures are in Euros unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). This can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial and company disclosures, Bank of Spain and the European Central Bank. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve-month period. DBRS’s outlooks and ratings are under regular surveillance

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Maria Rivas – Vice President - Global FIG
Rating Committee Chair: Elisabeth Rudman – Managing Director, Head of EU FIG, Global FIG
Initial Rating Date: November 23, 2009
Most Recent Rating Update: July 14, 2017

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