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Fitch raises Bankia's rating to ‘BBB’, with stable outlook

Fitch explains that the increase in Bankia's rating “occurs as a result of the significant reduction in problematic assets”.

Communication Bankia

By  Communication Bankia

Publish on 
30 January 2019 - 18:45

  • The rating reflects a strengthened franchise following the integration with BMN, the maintenance of a robust post-merger capital, and adequate financing and liquidity
  • The agency believes that the profitability of the entity “is gradually improving”, supported by greater commercial activity, mainly consumer and SMEs

The rating agency Fitch has upgraded Bankia's long-term rating to ‘BBB’ (previously ‘BBB-’) and changes the entity's outlook from ‘positive’ to ‘stable’. Likewise, it has also raised the rating of BFA Holder of Shares from ‘BB +’ to ‘BBB-’ with a ‘stable’ outlook.

Fitch explains that the increase in Bankia's rating “occurs as a result of the significant reduction in problematic assets” that has resulted in a significant decrease in the exposure of capital to net problem assets.

For Fitch, the rating reflects a strengthened franchise following the integration with BMN, the maintenance of a robust post-merger capital, adequate financing and liquidity, and a record in the management of integrations, as evidenced by the accelerated integration of BMN, carried out without incidents.

In any case, in the opinion of the agency, Bankia still has to face the challenge of balancing the business mix and improving profitability.

The agency considers that the objective for 2019 of reducing problematic assets by 2,900 million euros, foreseen in the Strategic Plan 2018-2020, “is achievable, supported by good perspectives for the economic environment in Spain, and the trajectory of the bank in the reduction of default”.

Regarding capital, Fitch indicates that Bankia “maintains satisfactory capital cushions above minimum regulatory requirements”. It notes that the CET1 FL ratio at the close of 2018 (12.6%) compares well with the 9.25% required by the SREP requirements in fully loaded terms for 2018.

The agency believes that Bankia's profitability is “gradually improving”, supported by greater commercial activity in the most profitable business segments, such as the consumer and SME ones, and asset management commissions.

However, the firm’s analysts point out, “profitability is constrained” by a still mild growth of net credit, a high weight of unprofitable mortgages and a sizeable portfolio of highly unprofitable SAREB bonds.

Fitch estimates that “profitability will continue to face the challenge of a low interest rate environment”, although it expects it will “remain stable or even moderately improve” due to an improved business mix, cost synergies associated with BMN, growth in the commissions business and low provisions.

Financing of the entity

Regarding its financing, Fitch indicates that the bank is mainly financed through its extensive customer deposit base, which represents 66% of its total external financing. The remaining financing consists of mortgage bonds or repos with the ECB, which are used to finance a considerable portion of the SAREB bonds.

The agency expects Bankia to continue financing SAREB bonds mainly through short and medium term financing. In this sense, it considers that “liquidity reserves are adequate for the expected maturities of short-term debt and for potential short-term financing risks”. It also emphasises that “the bank has good access to capital markets”, as demonstrated in 2017 and 2018, with the issue of subordinated debt and AT1 instruments, respectively.

With respect to the evolution of the rating in future, Fitch estimates that the rating could rise based on an improvement in asset quality metrics, resulting in a lower vulnerability of capital to net problematic assets, and to greater evidence of an improvement in profitability. In addition, this should be accompanied by the maintenance of solid capital ratios.

Regarding BFA, the ratings are inferred from those of Bankia as it is its main asset. BFA's ratings are one step below Bankia's to reflect Fitch's vision of the fact that BFA's strategy is to gradually divest its stake until December 2021.

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