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5 months ago
Fitch Affirms Ibercaja at 'BB+'; Outlook Positive
April 7, 2017 / 5:03 PM / 5 months ago

Fitch Affirms Ibercaja at 'BB+'; Outlook Positive

(The following statement was released by the rating agency) BARCELONA/LONDON, April 07 (Fitch) Fitch Ratings has affirmed Ibercaja Banco S.A.'s Long-Term Issuer Default Rating (IDR) at 'BB+' and Viability Rating (VR) at 'bb+'. The Outlook on the Long-Term IDR is Positive. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT Ibercaja's ratings and Positive Outlook reflect Fitch's expectation that capital levels will be strengthened through internal capital generation. This, combined with asset quality improvements, would result in a lower capital-at-risk from unreserved problem assets and could trigger a rating upgrade. Asset quality and capital ratios are improving although they remain weak and below that of many peers. The ratings also factor in the bank's strong regional franchise, modest earnings generation, stable funding structure and liquidity profile. Ibercaja's capitalisation levels are maintained with moderate buffers over regulatory minimums. The fully loaded common equity Tier (CET) 1 ratio increased to 10.2% at end-2016 (9.7% at end-2015). In 1Q17 the bank repaid the outstanding state-owned contingent convertible bonds (originally EUR407 million) ahead of schedule. This will reduce the overall funding cost and should support the bank's plan to strengthen capital through earnings retention. Ibercaja's capital remains vulnerable to asset quality shocks because unreserved problem assets still accounted for 108% of the fully loaded CET1 capital at end-2016. The bank's asset quality metrics are relatively weak compared to those of its international peers, but are broadly in line with the Spanish banking sector average. The non-performing loans (NPL) ratio remained broadly stable at 9.2% at end-2016 (11.4% including foreclosed assets) as the implementation the Bank of Spain's new circular in October 2016 resulted in additional NPL recognition and offset the positive asset quality trend experienced in 2016. The NPL reserve coverage level stood at a just adequate 44% at end-2016. We expect asset quality to continue improving in 2017 as the unemployment rate and the real-estate sector recover further. Ibercaja's profitability is modest and remains under pressure in the context of low interest rates and muted business volumes. However, the group's business model benefits from a degree of diversification relative to peers thanks to its meaningful insurance and asset management businesses. This provides some stability to revenues through the economic and interest-rate cycle. The bank also has the potential to improve operating efficiency as it achieves the synergies planned upon the acquisition of a competitor in 2013. The bank's main funding source is a stable and granular retail deposit base which broadly funds the loan book. Wholesale funding is mostly in the form of repos, covered bonds and ECB funding. The bank has a comfortable liquidity position, in light of debt maturities, including mostly unencumbered sovereign debt. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'No Floor' reflect Fitch's belief that Ibercaja's senior creditors can no longer rely on receiving full extraordinary support from the sovereign in the event that Ibercaja becomes non-viable. The EU's Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM) for eurozone banks provide a framework for resolving banks that is likely to require senior creditors participating in losses, instead of, or ahead of a bank receiving sovereign support SUBORDINATED DEBT The bank's subordinated debt is notched down one level from the bank's VR for loss severity because of lower recovery expectations relative to senior unsecured debt. These securities are subordinated to all senior unsecured creditors. RATING SENSITIVITIES IDRS, VR AND SENIOR DEBT The ratings could be upgraded if the bank strengthens its loss-absorbing buffers and raises capital ratios to a level more commensurate with investment-grade rated peers. This could be achieved either through internal capital generation or a rights issue and would provide further protection to the bank's senior creditors against downside risks. Reducing exposure to problem assets would also be rating-positive. Downward rating pressure could arise from the bank's failure to build additional capital buffers in the next two years or from a sharp deterioration in asset quality, which Fitch does not currently expect. A material weakening of core profitability would also put pressure on the ratings. SUPPORT RATING AND SUPPORT RATING FLOOR An upgrade of the SR and upward revision of the SRF would be contingent on a positive change in the sovereign's propensity to support Ibercaja Banco. While not impossible, this is highly unlikely, in Fitch's view. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt ratings are sensitive to changes in Ibercaja Banco's VR and therefore to the same factors that would determine a change in the VR. The rating actions are as follows: Long-Term IDR: affirmed at 'BB+'; Outlook Positive Short-Term IDR: affirmed at 'B' Viability Rating: affirmed at 'bb+' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Subordinated debt: affirmed at 'BB' Contact: Primary Analyst Josu Fabo, CFA Director +34 93 494 3464 Fitch Ratings Espana, S.A.U. Av. Diagonal, 601, 2nd Floor 08029 Barcelona Secondary Analyst Arnau Autonell Associate Director +44 20 3530 1712 Committee Chairperson Olivia Perney Guillot Senior Director +33 1 44 29 91 74 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021894 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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