Press Release

DBRS Morningstar Confirms CaixaBank’s Issuer Ratings at A / R-1 (low), Stable Trend

Banking Organizations
March 30, 2020

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of CaixaBank S.A. (CaixaBank or the Bank), including the Long-Term Issuer Rating of “A” and the Short-Term Issuer Rating of R-1 (low). All ratings have a Stable Trend. The Bank’s Intrinsic Assessment (IA) remains at A and the Support Assessment at SA3. See the full list of ratings in the table at the end of this press release.

KEY RATING CONSIDERATIONS
The confirmation of CaixaBank’s ratings reflect the strength of its banking franchise in Iberia which has supported the Bank’s improvement in core revenues in a challenging low interest rate environment. The ratings also incorporate CaixaBank’s improved structural profitability after the Bank sold most of its real estate exposures and is implementing significant restructuring plans. The ratings take into account that CaixaBank´s asset quality, after improving in recent years, is now close to comparable European peers. The Bank has a sound funding and liquidity position as reflected by solid liquidity ratios and a good track record of liquidity management in a stressed environment. The ratings also incorporate CaixaBank’s sound capital levels and solid loss absorption capacity given its strong Minimum Requirement for own funds and Eligible Liabilities (MREL) ratio. DBRS Morningstar will continue to monitor the developing coronavirus (COVID-19) situation and the potential impact on revenues, profits and asset quality, whilst taking into account the significant relief measures being taken by governments and regulators.

RATING DRIVERS
An upgrade or positive rating pressure to the long-term ratings would require a positive rating action in the Spanish sovereign rating coupled with improvement in the Bank’s core profitability.

A downgrade or negative pressure to CaixaBank’s long-term ratings could arise from a deterioration in Spain’s sovereign rating. Indications of a material increased risk profile, particularly within CaixaBank’s consumer lending business, without the appropriate increase in capitalisation, would also have negative rating implications. Lastly, a material impact on the Bank’s capital position or asset quality as a result of the COVID-19 outbreak could be negative for the rating.

RATING RATIONALE
CaixaBank is the third largest Spanish banking group by total assets. CaixaBank is one of the leading commercial banks in Iberia, and provides universal banking services to individuals, small- and medium-sized enterprises and large corporations. The Bank has strong market shares in Spain including 15.7% in loans and 15.4% for deposits, while in Portugal, CaixaBank owns the fifth largest bank by total assets, Banco BPI.

DBRS Morningstar views CaixaBank’s profitability has significantly improved in recent years helped by sustained growth of core revenues in Spain and lower impairments. The Bank has improved its structural profitability after selling most of its real estate exposures and is implementing significant restructuring plans. CaixaBank reported net attributable profit of EUR 1.7 billion in 2019, down by 14% year-on-year (YoY), driven by higher expenses related to restructuring costs announced in 2019. When excluding impact of the non-recurrent items related to restructuring, net attributable income rose 20.4% YoY, driven by growth in core revenues and reduced asset disposal costs. DBRS Morningstar considers the COVID-19 crisis will generate pressure on revenues as new lending volumes are likely to be lower due to weaker demand, and the net interest margin will be likely be negatively impacted by the likelihood of interest rates staying lower for longer. Spain has also approved mortgage holidays and forbearance on loan repayments for households classified as vulnerable. While the extent of the impact is uncertain, it is expected to affect CaixaBank’s revenues.

CaixaBank’s risk profile continued to improve during 2019 and now its asset quality metrics are close to European peers. The Bank continued to reduce its stock of non-performing assets (NPAs) at a good pace, helped by the improving economic and real estate market conditions in Spain in 2019. The NPA ratio stood at 4.4% at end-2019 (as calculated by DRBS Morningstar), while CaixaBank’s NPL ratio (as calculated by DBRS Morningstar, excluding contingent exposures) was 3.7%. DBRS Morningstar considers the Bank’s exposure to consumer loans (around 7.5% of their net loan book as of end-2019) as well managed, and that risks remain contained. In terms of asset quality, the extent of the impact of the COVID-19 crisis on loans delinquencies is uncertain, and will depend on the duration of the outbreak and the level of unemployment, and the offsetting impact of government measures. DBRS Morningstar also notes the CaixaBank’s loan book showed more resilience than other Spanish peers to economic shocks in the 2018 EBA-wide stress.

CaixaBank’s funding is underpinned by its franchise position in Spain where the Bank has maintained strong market shares for deposits. The Bank’s funding and liquidity ratios such as the loan to deposit (LTD) ratio, the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) remain strong. DBRS Morningstar notes that the Bank’s customer deposits grew by 3.5% in 2019 and are the Group’s main source of funding, representing around 80% of total funding at end-2019. DBRS Morningstar also notes that CaixaBank was compliant with its 22.5% RWAs MREL requirement as of end-December 2019 on a pro-forma basis including EUR 1 billion Senior Debt issued in January 2020.

DBRS Morningstar views CaixaBank’s capital position as sound, supported by the Bank’s good track record in generating earnings, access to capital markets and solid capital cushions. At end-2019 the Bank’s capital ratios amply exceeded its end-2019 minimum requirements. Amid the outbreak of COVID-19, the Bank has reduced the proposed dividend for 2019 and 2020 to a cash pay-out lower than 30% of consolidated earnings. As a result, CaixaBank´s fully-loaded CET1 ratio would be 12.4% pro-forma as of end-2019. In addition, CaixaBank should benefit from measures taken by the European authorities providing some room to maneuver the challenging environment.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792

The Grid Summary Grades for CaixaBank S.A. are as follows: Franchise Strength – Strong; Earnings – Strong/Good; Risk Profile – Good; Funding & Liquidity – Strong/Good; Capitalisation – Strong/Good.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (11 June 2019)- https://www.dbrsmorningstar.com/research/346375/global-methodology-for-rating-banks-and-banking-organisations.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883

The sources of information used for this rating include Annual Reports (2015-2019), Quarterly Reports (2015-2019),
Presentations (2015-2019), European Banking Authority (EBA) Transparency Exercise, Bank of Spain Statistical Bulletin and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar 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 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar 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

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/359041

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

Lead Analyst: Pablo Manzano, Vice President, Global FIG
Rating Committee Chair: Ross Abercromby, Managing Director, Global FIG
Initial Rating Date: March 4, 2013
Last Rating Date: March 29, 2019

DBRS Ratings GmbH, Sucursal en España
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Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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Amtsgericht Frankfurt am Main, HRB 110259

For more information on this credit or on this industry, visit www.dbrsmorningstar.com