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Fitch Affirms CaixaBank at 'BBB/Positive'; Criteria at 'BBB-/Stable'
April 7, 2017 / 4:53 PM / 8 months ago

Fitch Affirms CaixaBank at 'BBB/Positive'; Criteria at 'BBB-/Stable'

(The following statement was released by the rating agency) LONDON, April 07 (Fitch) Fitch Ratings has affirmed Spain-based CaixaBank S.A.'s and Criteria Caixa S.A. Unipersonal (Criteria) Long-Term Issuer Default Ratings (IDR) at 'BBB' and 'BBB-' respectively. The Outlook on the Long-Term IDR of CaixaBank is Positive while that of Criteria is Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT (CAIXABANK) CaixaBank's ratings reflect the bank's leading position in the Spanish bancassurance market, diversified revenue generation, adequate capital buffers, and a stable funding and liquidity position. The ratings also factor in the large, albeit declining, stock of problem assets (non-performing loans (NPLs) and foreclosures) and still material exposure to market risk through equity holdings. The ratings also incorporate our view that the execution risk in the integration of Portugal's Banco BPI (BBB-/Stable/bb) is fairly low. CaixaBank's asset quality metrics are improving, helped by the recovery of the Spanish economy. The stock of problem assets declined by around 10% year-on-year (yoy), both in 2015 and 2016. The problem asset ratio is still high (at 10% at end-2016) and compares unfavorably with international peers. On a pro-forma basis, incorporating Banco BPI's end-June 2016 unreserved problem assets as per EBA's transparency information, Fitch calculates that the group's unreserved problem assets still accounted for 94% of the fully loaded common equity Tier 1 (CET1), indicating that capital is vulnerable to asset quality shocks. We expect part of the restructured - and still classified as non-performing - loans will cure in the next two years, which will help to reduce the high amount of total unreserved problem assets. CaixaBank maintains satisfactory capital buffers over minimum regulatory requirements. Taking into account the consolidation of Banco BPI, the group's pro-forma end-2016 fully loaded CET1 ratio was 11.3%. Exposure to market risk has decreased, as the bank sold two significant equity stakes to its holding company in 2016 and consolidated Banco BPI in 1Q17. However, the equities portfolio remains large relative to the bank's capital. We expect the bank to continue divesting this portfolio in the medium term. We expect CaixaBank's earnings generation capacity to strengthen gradually over the medium term, due to its leading retail banking, insurance and asset management businesses in Spain. The group's strong franchise and diversified business model provides it with a demonstrated pricing power and revenue stability. The bank has a good track record in achieving planned synergies from acquisitions and we expect further synergy potential following the consolidation of Banco BPI. CaixaBank's funding primarily comprises a large customer deposit base and covered bonds. Funding imbalances are minimal and wholesale debt repayments are low in light of the bank's liquid assets. The bank has good access to the debt capital markets. IDRS, VR AND SENIOR DEBT (CRITERIA) Criteria is CaixaBank's holding company for regulatory and supervision purposes. The VR and IDRs of Criteria are notched down from CaixaBank, primarily because Criteria has continued to reduce its stake in the bank. We have revised Criteria's Outlook back to Stable because of the decreasing linkages between the credit profiles of CaixaBank and Criteria, as further progress is made towards the regulatory de-consolidation of CaixaBank by Criteria. Criteria now owns about 40% of CaixaBank, intragroup funding has been significantly reduced and the influence over Caixabank's governance is declining. SUPPORT RATING AND SUPPORT RATING FLOOR CaixaBank's and Criteria's Support Ratings (SR) of '5' and Support Rating Floors (SRF) of 'No Floor' reflect Fitch's belief that senior creditors of the banks can no longer rely on receiving full extraordinary support from the sovereign in the event that the bank 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 AND OTHER HYBRID SECURITIES CaixaBank's Lower Tier 2 subordinated debt is rated one notch below its VR, to reflect the notes' greater expected loss severity than senior unsecured debt. RATING SENSITIVITIES IDRS, VR AND SENIOR DEBT (CAIXABANK) The Positive Outlook reflects potential ratings upside if the bank improves profitability levels and manages down the stock of problem assets, thus reducing the sensitivity of its capitalisation to asset quality shocks. Asset de-risking from equity investments and improving earnings beyond our expectations, would also be rating positive. Material deterioration in asset quality and capital, which Fitch currently does not expect, could lead to CaixaBank's ratings being downgraded. Similarly, a significant increase in risk appetite, jeopardising the bank's risk profile amid muted loan growth prospects, and/or a deterioration of funding and liquidity profiles, would put pressure on the bank's ratings. IDRS, VR AND SENIOR DEBT (CRITERIA) Once Criteria achieves regulatory deconsolidation of CaixaBank, Fitch expects to rate Criteria under its 'Criteria for Rating Non-Financial Corporates' (including 'Rating Investment Holding Companies'), rather than its 'Global Bank Rating Criteria'. At this point, it's VR, Support Rating floor and Support Rating (which Fitch normally only assigns to banks or bank holding companies) would be withdrawn. We do not currently expect the change of criteria in itself to affect Criteria's IDRs and senior debt ratings; under both criteria, they are primarily sensitive to positive/negative changes in Criteria's stand-alone leverage and the creditworthiness, cash flow profile, diversification and dividend policy (and related track record) of its major investments. SUPPORT RATING AND SUPPORT RATING FLOOR An upgrade of the SRs and an upward revision of the SRFs would be contingent on a positive change in the sovereign's propensity to support Criteria and CaixaBank respectively. While not impossible, this is highly unlikely, in Fitch's view. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings of the lower and upper Tier 2 debt instruments are primarily sensitive to a change in the bank' VR. The rating actions are as follows: CaixaBank Long-term IDR: affirmed at 'BBB'; Positive Outlook Short-term IDR: affirmed at 'F2' Viability Rating: affirmed at 'bbb' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Senior unsecured debt long-term rating: affirmed at 'BBB' Senior unsecured debt short-term rating and commercial paper: affirmed at 'F2' Lower tier 2 subordinated debt: affirmed at 'BBB-' Criteria: Long-term IDR: affirmed at 'BBB-'; Outlook Stable Short-term IDR: affirmed at 'F3' Viability Rating: affirmed at 'bbb-' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Senior unsecured debt long-term rating: affirmed at 'BBB-' Senior unsecured debt short-term rating: affirmed at 'F3' Contact: Primary Analyst Josu Fabo, CFA Director +34 93 494 34 64 Fitch Ratings Espana, S.A.U. Avinguda 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: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021889 Solicitation Status here Endorsement Policy 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 WEB SITE AT <a href="">WWW.FITCHRATINGS.COM.. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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