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Fitch Affirms Caja Rural Del Sur at 'BBB'; Assigns 'bbb' VR
May 22, 2014 / 4:03 PM / 3 years ago

Fitch Affirms Caja Rural Del Sur at 'BBB'; Assigns 'bbb' VR

(The following statement was released by the rating agency) LONDON, May 22 (Fitch) Fitch Ratings has affirmed Caja Rural Del Sur, Sociedad Cooperativa's (CRS) Long-term Issuer Default Rating (IDR) 'BBB' with Stable Outlook, Short-term IDR at 'F3', Support Rating (SR) at '3' and Support Rating Floor (SRF) at 'BB'. At the same time it has assigned the bank a Viability Rating (VR) of 'bbb'. Fitch has also withdrawn Grupo Cooperativo Iberico de Credito's (GCI) ratings as it has ceased to exist. A full list of rating actions is at the end of this rating action commentary. The rating actions follow changes in the group's corporate and legal structure. GCI was the result of the integration of CRS, Caja Rural de Extremadura (CRE) and Caja Rural de Cordoba (CRC) in 2011 under an institutional protection scheme. In late March 2014, CRE left the group and GCI was dissolved. The two entities remaining, CRS and CRC, have initiated a merger process, which Fitch expects to be formalised by June 2014, when the merger is appropriately registered. CRS will be the new consolidating entity. KEY RATING DRIVERS - VR and IDRS CRS's Long-term IDR is driven by its newly assigned VR, which is based on Fitch's expectation of the imminent completion of the merger between CRS and CRC. Fitch expects the merger to result in a marginally stronger bank than GCI, soundly capitalised and solidly funded. However, CRS's VR also considers the pressure remaining on its asset quality, and core banking earnings, and the risks associated with the forthcoming integration. Fitch has calculated that CRS's pro-forma (after the merger) Fitch's core capital ratio would be 15.9%, which together with an existing high allowance against problem loans (70%) would provide it with sound loss absorption buffers against shocks. CRS's funding profile benefits from the large deposit base of both CRS and CRC, reflected in its pro-forma loan-to-deposit ratio of 85% at end-2013. Post-merger liquidity also remains sound (liquid assets would represent 17% of assets at end-2013). As with other Spanish banks, Spain's economic recession negatively affected CRS's credit risk profile. Whilst high at 11%, its pro-forma impaired loans/total loans ratio at end-2013 was slightly better than the sector average. This has been achieved despite operating in Andalusia, where there is a higher than average unemployment rate (36% at end-2013). Spain's improved macroeconomic indicators should help alleviate asset quality pressure in the coming quarters. CRS's recent limited earnings generation capability is a negative driver of the VR. Muted demand for credit and the low interest rate environment put pressure on its net interest income (NII). Therefore, the entity will have to rely on other sources of revenues such as commission income to compensate for the potential NII decline. There is also room to improve its cost efficiency post-merger. RATING SENSITIVITIES - VR and IDRS Upward rating potential would arise from a sustained improvement in profitability and asset quality while maintaining high capital ratios and sound funding and liquidity. This could compensate for its small national franchise and equity size. Conversely, downside risks could arise if the level of problematic assets continues increasing, pre-impairment profit decreases and does not allow for further provisioning, and/or capital deteriorates significantly. KEY RATING DRIVERS - SR AND SRF CRS's SR of '3' and SRF of 'BB' reflect Fitch's view that there is a moderate likelihood of support for the bank from the authorities, if needed. This is because of its regional importance in the region of Andalusia. RATING SENSITIVITIES - SR AND SRF The SR and SRF are sensitive to a weakening of the assumptions around Spain's ability and propensity to provide timely support to the group. Of these, the greatest sensitivity is to progress made in implementing BRRD and SRM. Fitch expects to downgrade CRS's SR to '5' and its SRF to 'No Floor' either during 2014 or 1H15. Timing will be influenced by progress made on bank resolution legislation. The rating actions are as follows: CRS Long-term IDR affirmed at 'BBB'; Outlook Stable Short-term IDR affirmed at 'F3' Viability Rating assigned at 'bbb' Support Rating affirmed at '3' Support Rating Floor: affirmed at 'BB' GCI Long-term IDR 'BBB', withdrawn Short-term IDR 'F3', withdrawn Viability Rating 'bbb', withdrawn Support Rating '3'; withdrawn Support Rating Floor 'BB', withdrawn Contact: Primary Analyst Belen Vazquez Associate Director +44 203 530 1504 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Josu Fabo Director +44 20 3530 1513 Committee Chairperson Claudia Nelson Senior Director +44 20 3530 1191 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014 is available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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