DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Bankinter S.A. (Bankinter or the Bank), including the Long-Term Issuer Rating of A (low) and the Short-Term Issuer rating of R-1 (low). The trend on all Long-Term ratings is revised to Positive whereas the trend on all Short-Term ratings is Stable. DBRS Morningstar has also maintained the Intrinsic Assessment (IA) of the Bank at A (low) and the Support Assessment at SA3. See a full list of ratings at the end of this press release.
KEY CREDIT RATING CONSIDERATIONS
The confirmation reflects Bankinter’s solid financial performance amid the challenging economic environment as well as its improved funding profile during recent years supported by a more balanced funding mix. Bankinter’s asset quality has remained solid and the Bank has one of the lowest non-performing loan (NPL) ratios among Spanish banks. In addition, the Bank’s profitability levels have remained resilient driven by strong commercial activity and high NII sensitivity to interest rates. Bankinter’s ratings also take into account its satisfactory capital position, in particular its strong capital generation capacity.
The Positive trend reflects the Bank’s sound track record in risk management as well as our expectation that Bankinter’s asset quality will deteriorate less than initially anticipated during the rapid transition to a normalised interest rate environment. The trend considers our expectation that Bankinter’s profitability will remain solid in coming quarters on the back of higher net interest income and stable cost of risk. DBRS Morningstar expects the Bank to maintain sound asset quality and capitalisation ratios, despite the current operating environment of high inflation and rising interest rates.
CREDIT RATING DRIVERS
An upgrade of the Long-Term ratings would require Bankinter to maintain solid profitability and asset quality ratios throughout the current challenging conditions, including the rapid transition to a normalised interest rate environment.
The trend could be revised to Stable if the Bank’s profitability experiences a sustained and significant deterioration or if asset quality materially worsens. The ratings could be downgraded if the Bank’s capital ratios deteriorate materially.
CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Good
Bankinter’s A (low) rating is supported by the Bank’s solid franchise in Spain where it is the 5th largest banking group with total assets of around EUR 106 billion at end-March 2023. The Bank’s national market shares for loans and deposits were between 4-5% at end-March 2023. However, its position in private banking is more substantial with a larger domestic market share. Bankinter has completed a number of corporate transactions in recent years, including the acquisition of Barclays Portugal in 2016, the acquisition in 2019 of EVO Banco and its credit subsidiary in Ireland (Avant Money), and the transfer of Linea Directa (LDA) to its shareholders in April 2021. After the latter transfer, Bankinter still holds a 17.4% stake in LDA.
Earnings Combined Building Block (BB) Assessment: Good
Bankinter reported a return on equity (RoE) of 15% (as calculated by DBRS Morningstar) in Q1 2023, the highest since the global financial crisis. Results were positively affected by higher core revenues, up 45% YoY, which are increasing at a faster pace than operating expenses, up 6% YoY. Net Interest Income (NII) was up 63% YoY, reflecting the positive impact of higher interest rates on the Bank’s loan book (70% of its mortgage book and around 60%-65% of its corporate book is at variable rates). Cost of Risk stood at 42 bps in Q1 2023, slightly higher compared to pre-pandemic levels. DBRS Morningstar also notes that Bankinter´s annualised operating income in Q1 2023 is now above the level as before the LDA transfer. Bankinter has compensated for the loss in revenues due to the LDA transfer with revenues from its core business and from its new business lines which accounted for 18% of total revenues at end-March 2023 (Avant Money, Bankinter Portugal and EVO). DBRS Morningstar expects the Bank to continue to benefit from higher NII in coming quarters as the loan book fully reprices at higher interest rates although it sees the benefit as being partially offset by an expected increase in deposit costs.
Risk Combined Building Block (BB) Assessment: Good
Despite the challenging economic environment, Bankinter’s asset quality has remained sound, and better than its domestic peers, driven by the Bank’s sound risk management and high exposure to affluent individuals. The Bank’s Stage 3 loans ratio was 2.2% at end-March 2022 (as calculated by DBRS Morningstar) and is well below the Spanish banking system. Total Non-Performing assets (NPAs, which include NPLs and foreclosed assets, FAs) represented 2.6% of total loans and FAs. For 2023, DBRS Morningstar considers the main credit risk to come from the impact of higher interest rates on Bankinter´s loan book. In this regards, DBRS Morningstar considers the evolution of Stage 2 loans (exposures whose credit risk has significantly increased) as a key indicator. At end-March 2023 these exposures represent around 3.4% of its portfolio, compared to 3.0% at end-March 2022. Despite this increase, Bankinter has a lower proportion of Stage 2 than other Spanish Banks (6.8% at end-2022), which in turn have lower Stage 2 exposures compared with other EU Banks. In addition, DBRS Morningstar considers Bankinter’s interest rate risk management as sound. At end-March 2023, Bankinter’s unrealised losses in its fixed income portfolio amounted to around 150bps of capital (CET1 ratio after tax).
Funding and Liquidity Combined Building Block (BB) Assessment: Good
DBRS Morningstar considers Bankinter’s liquidity and funding as well placed. DBRS Morningstar views the Bank’s funding profile as improved, with customer deposits being the main source of funding, accounting for around 77% of total funding sources at end-March 2023 (as calculated by DBRS Morningstar). Similar to other domestic banks, Bankinter’s deposit base was pressured in Q1 2023, declining 3% YOY, as funds shifted from retail deposits to higher yielding products such as fixed income securities and investment funds. Bankinter’s liquidity profile remained satisfactory, with both the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NFSR) ratios above the minimum requirements, and the net loan to deposit (LTD) ratio, (as calculated by DBRS Morningstar) stood at around 99% at end-March 2023.
Capitalisation Combined Building Block (BB) Assessment: Good/Moderate
DBRS Morningstar believes that Bankinter’s capital position is satisfactory, due to the Bank’s internal capital generation ability through retained earnings and sound access to the capital markets. Bankinter reported a CET1 ratio of 12.21% at end-March 2023, up from 11.9% one year ago, and well above minimum regulatory requirements. Capital cushions over minimum regulatory requirements stood at around 450 bps, comparing well to domestic peers. Bankinter has the second lowest P2R requirement under the SREP among the large Spanish banks, despite having a 9 bps add-on due to the compliance with supervisory expectations for prudential provisioning.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/417038
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental or 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 (4 July 2023) https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings
All figures are in EUR unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (23 June 2023) https://www.dbrsmorningstar.com/research/415978/global-methodology-for-rating-banks-and-banking-organisations . In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023) https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings
in its consideration of ESG factors. and the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (28 May 2023) https://www.dbrsmorningstar.com/research/411694/dbrs-morningstar-global-criteria-guarantees-and-other-forms-of-support
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 this rating include Morningstar Inc. and Company Documents, Bankinter - Annual Reports (2015-2022), Bankinter - Quarterly Reports (2015-Q1 2023), Bankinter - Presentations (2015-Q1 2023). 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. For further information on DBRS Morningstar 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 rating assumptions can be found at: https://www.dbrsmorningstar.com/research/417037
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Pablo Manzano, CFA, Vice President - Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of Global FIG
Initial Rating Date: November 15, 2012
Last Rating Date: November 15, 2022
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