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 reflects its leading banking franchise in Iberia, which has been further strengthened following the recent merger with Bankia. The confirmation also considers DBRS Morningstar’s view that CaixaBank’s profitability is expected to improve on the back of higher Net Interest Income (NII), driven by higher interest rates. CaixaBank’s asset quality profile remains sound despite a challenging economic environment characterised by the ongoing energy crisis, high inflation, and a rapid increased of interest rates. However, it is still unknown as to what extent asset quality may deteriorate after the full pass-through of higher interest rates into CaixaBank´s loan book. Nevertheless, DBRS Morningstar considers that CaixaBank is well positioned to manage this situation effectively thanks to adequate risk provisioning and sound capitalisation. Furthermore, the Bank’s funding and liquidity profile has strengthened after the merger with Bankia and the Bank had already repaid the bulk of its central bank funding at end-2022.
An upgrade to the long-term ratings of CaixaBank would require an upgrade in the Spanish sovereign rating coupled with an improvement in the Bank’s asset quality profile.
A downgrade of CaixaBank’s long-term ratings could arise from a deterioration in Spain’s sovereign rating. A material deterioration in the Bank´s asset quality would also be negative for the rating.
Franchise Combined Building Block Assessment: Strong/Good
CaixaBank provides universal banking services to individuals, small and medium-sized enterprises and large corporations in Spain and Portugal. In 2021 the Bank completed its merger with Bankia SA, at the time the fifth largest Spanish banking group by total assets. The merger consolidated the market leadership of CaixaBank in Spain with a market share in deposits of around 25% (as reported by CaixaBank at end-2022). DBRS Morningstar consider that current market conditions are challenging, with supply and demand factors restraining new credit production in 2023. As a result, we expect CaixaBank´s loan book to slightly decrease in 2023. In Portugal, CaixaBank owns the fifth largest bank by total assets, Banco BPI, at end-June 2022.
Earnings Combined Building Block Assessment: Good
CaixaBank reported a net attributable profit of EUR 3.1 billion in 2022 with a Return of Average Equity (ROAE) of around 9% (as calculated by DBRS Morningstar). On a like-for-like basis, net attributable profit was up 30% YoY in 2022. The like-for-like excludes the one-off impacts related to the merger with Bankia in 2021 and takes into account Bankia's results in the first quarter of 2021, given that the merger took place in March 2021. CaixaBank´s 2022 results were positively affected by higher NII and net fees, whilst the Bank reduced its costs after the merger with Bankia and maintained a stable cost of risk. DBRS Morningstar considers that CaixaBank´s profitability will likely improve during 2023 as higher NII will more than compensate for the negative impact coming from the new financial tax, the new code of good practices for households, as well as the expected deterioration in its cost of risk given the challenging macroeconomic environment.
Risk Combined Building Block Assessment: Good/Moderate
CaixaBank’s asset quality profile remains sound despite the difficult economic environment. Furthermore, DBRS Morningstar views that the impact on CaixaBank’s financial profile from COVID-19 has been less than anticipated. The Bank’s non-performing loan (NPL) ratio was 2.8% at end-2022 (as calculated by DBRS Morningstar), down from 3.7% at end-2021. The total Non-Performing Assets ratio (which includes NPLs and foreclosed assets FAs) was 4.1%, down from 5.2% at end-2021. DBRS Morningstar considers that the State Guaranteed Loans and loan moratoria measures during the COVID-19 pandemic limited past-due situations, and prevented the deterioration of traditional asset quality metrics. CaixaBank extensively used both measures, however both portfolios have performed better than initially anticipated. As of end-2022, all of CaixaBank’s loans under moratoria had expired, whereas the existing State Guaranteed Loans amounted to EUR 18.3 billion, down 16% YoY. We consider any potential deterioration in this book would likely translate into a modest deterioration of CaixaBank’s asset quality profile, given the guarantees provided by the Kingdom of Spain (which covers up to 80% of the credit losses). For 2023, DBRS Morningstar considers the main credit risk to be the impact of higher interest rates on CaixaBank´s loan book. In this regard, DBRS Morningstar will closely monitor the evolution of the measures granted by Spanish banks in relation to the new code of good practices for households.
Funding and Liquidity Combined Building Block Assessment: Strong/Good
CaixaBank’s funding is underpinned by its leading franchise in Spain where the Bank has maintained strong market shares for deposits (around 25% at end-2022). DBRS Morningstar considers CaixaBank´s deposit base to be largely retail and stable. DBRS Morningstar views that the Bank is positioning adequately for a smooth transition through the end of the ECB’s accommodative monetary policy. In this regard, CaixaBank reduced its TLTRO III exposure by 81% in 2022, leaving outstanding TLTRO exposures of EUR 15.6 billion (around 2.5% of total assets). On a pro-forma basis, CaixaBank’s end-2022 LCR would stand at 162% if all TLTRO funds were to be excluded, while the NSFR would remain largely unchanged at 140%.
Capitalisation Combined Building Block Assessment: Good
CaixaBank´s capital ratios have decreased during 2022 due to the impact of a share buyback and dividend payments, which were resumed after the end of the ECB recommendation to limit dividends during the COVID-19 pandemic. The Bank reported a regulatory CET1 ratio of 12.8% down from 13.2% in 2021. For 2023 the Bank expects to have around 50bps of negative regulatory capital impact coming from IFRS17 and due to IRB model adjustments. CaixaBank´s current CET1 capital ratio target range is 11% to 12%. DBRS Morningstar considers that the Bank will operate during 2023 slightly above its target, which we considered to be sound. The Pillar 2 requirement remained at 1.65%, whilst the domestic systemic risk buffer was set at 0.5% in 2023. This new capital requirement implies a capital cushion of around 436 basis points at end-2022. We also view as positive that at end-2022, CaixaBank is compliant with both its MREL requirements set in February 2022 for January 2024.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/410807
ENVIRONMENTAL, SOCIAL, 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 DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022)
All figures are in Euros unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations https://www.dbrsmorningstar.com/research/398692 (June 23, 2022). In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings, https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022) in its consideration of ESG factors.
The sources of information used for this rating include Morningstar Inc. and Company Documents, Annual Reports (2015-2022), Quarterly Reports (2015-2022), Presentations (2015-2022), European Banking Authority (EBA), and Bank of Spain. 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.
The conditions that lead to the assignment of a Negative or Positive trend are generally 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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/410808
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Pablo Manzano, Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman - Managing Director, Head of European FIG - Global FIG
Initial Rating Date: March 4, 2013
Last Rating Date: March 29, 2022
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