Madrid, February 21, 2017 -- Moody's Investors Service has today affirmed Banco Santander Totta S.A.'s
(BST) deposit and senior debt ratings at Baa3/Prime-3 and Ba1 respectively
and changed the outlook on the long-term ratings to positive from
stable. The rating agency has also affirmed the bank's (1) Baseline
Credit Assessment (BCA) at ba3; (2) the adjusted BCA at ba1;
(3) the subordinated debt program ratings issued by the London Branch
at (P)Ba2, (4) the junior subordinated debt program ratings issued
by the London Branch at (P)Ba3; and (5) the Counterparty Risk Assessment
at Baa3(cr)/Prime-3(cr).
Today's rating action reflects the improving trend in BST's
credit fundamentals after the integration of major parts of BANIF-Banco
Internacional do Funchal, S.A. (Banif, unrated)
and based on preliminary financials published within the group results
of the bank's Spanish parent Banco Santander S.A.
(Spain) (Banco Santander; A3/A3 stable; baa1). The affirmation
of BST's ratings with a positive outlook reflects the upward pressure
that could develop if the improving trend observed on asset risk and capital
continues over the next 12-18 months, while profit generation
capacity is sustained at currently sound levels. In addition,
the positive outlook reflects Moody's expectation that upward pressure
could result for BST's deposit and senior debt ratings if the bank
makes further progress in reducing the size of its balance sheet over
the outlook period, which will result in lower loss-given-failure
for these instruments and consequently higher rating uplift under Moody's
Advanced Loss Given Failure (LGF) analysis.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
---RATIONALE FOR THE AFFIRMATION OF BST's RATINGS
The affirmation of BST's BCA at ba3 reflects the improvement of the bank's
credit profile in the second half of 2016, after the deterioration
of its asset risk metrics that followed the acquisition of EUR11.1
billion of assets and liabilities from Banif in December 2015.
At end-December 2016, BST's problem ratio declined
to 8.8% from 10.5% at end-June 2016.
The weaker credit quality of Banif's loan portfolio was partly mitigated
by the substantial aid measures granted by the Portuguese government as
part of the sale process, which were used to reinforce provisioning
cushions. At end-December 2016, BST's coverage
ratio (i.e. loan loss reserves as % of problem loans)
stood at 63.7%, which compares very favorably to domestic
peers.
BST's relatively weak asset risk is also mitigated by the bank's:
(1) sound capital ratios (the fully loaded Common Equity Tier 1 ratio
stood at 16.5% at end-June 2016); (2) sound
and stable profit generation capacity (BST's net income over tangible
assets was 0.9% at end-June 2016) despite challenging
operating conditions in Portugal; and (3) improved liquidity position
owing to rising deposits and a lower reliance on European Central Bank
funding.
The affirmation of BST's deposit ratings at Baa3/Prime-3 and its
senior debt ratings at Ba1 also reflects: (1) the affirmation of
the bank's ba3 BCA; (2) unchanged high parental support assumptions
from Banco Santander, reflected in the affirmed ba1 adjusted BCA;
and (3) the result from the rating agency's Advanced LGF analysis leading
to one notch of additional ratings uplift for the deposit ratings and
no further uplift for the debt ratings.
---RATIONALE FOR THE POSITIVE OUTLOOK
The change of outlook on BST's long-term deposit and senior debt
ratings to positive from stable primarily reflects Moody's expectations
that BST will be able to maintain current positive trends on its financial
fundamentals. The rating agency expects a further improvement of
the bank's asset risk and capital over the outlook period of 12-18
months, which combined with Moody's expectation of stable
profit generation capacity could result in upward pressure on BST's
ratings.
In particular, a stronger assessment of BST's credit profile could
result if the bank manages to (1) reduce the problem loan ratio below
8% over the outlook period while preserving provisioning coverage
at current levels; (2) Moody's key capital metric the tangible
common equity to risk weighted assets ratio stands above 12.5%
(from 11.9% at end-June 2016); and (3) profitability
remains resilient at current levels.
Furthermore, positive pressure could be exerted on BST's deposit
and senior debt ratings if the bank optimizes further its balance sheet
throughout 2017 (at end-December 2016 total assets had declined
by 9% year-on-year), which could result in
lower loss given failure for these instruments and consequently higher
rating uplift under Moody's Advanced LGF analysis.
---RATIONALE FOR THE AFFIRMATION OF THE CR ASSESSMENT
As part of today's rating action, Moody's has also affirmed at Baa3(cr)/Prime-3(cr)
the CR Assessment of BST, one notch above the adjusted BCA of ba1
and reflecting the cushion provided by the volume of bail-in-able
debt and deposits (16% of tangible banking assets at end-December
2016), which would likely support operating obligations in resolution.
WHAT COULD CHANGE THE RATING UP/DOWN
BST's standalone BCA could be upgraded if the bank is able to reduce further
the stock of problem loans, while preserving sound capitalization
and profit generation capacity.
Given the positive outlook, BST's ratings show limited downward
pressure. However, the bank's BCA could be downgraded as
a result of (1) the reversal in current asset risk trends; and/or
(2) significant deterioration of profitability levels which would negatively
affect BST's internal capital-generation and risk-absorption
capacity.
As the bank's debt and deposit ratings are linked to the standalone BCA,
any change to the BCA would likely also affect these ratings.
Furthermore, BST's deposit and senior debt ratings could be affected
as a result of an upgrade/downgrade of the standalone BCA of the parent,
Banco Santander.
BST's senior unsecured debt and deposit ratings could also change as a
result of changes in the loss-given-failure faced by these
securities.
LIST OF AFFECTED RATINGS
Issuer: Banco Santander Totta S.A.
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed Baa3(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-3(cr)
....Long-term Deposit Ratings,
affirmed Baa3, outlook changed to Positive from Stable
....Short-term Deposit Ratings,
affirmed P-3
....Senior Unsecured Regular Bond/Debenture,
affirmed Ba1, outlook changed to Positive from Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Ba1
....Other Short Term, affirmed (P)NP
....Commercial Paper, affirmed NP
....Adjusted Baseline Credit Assessment,
affirmed ba1
....Baseline Credit Assessment, affirmed
ba3
..Outlook Action:
....Outlook changed to Positive from Stable
Issuer: Banco Santander Totta S.A., London
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed Baa3(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-3(cr)
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Ba1
....Subordinate Medium-Term Note Program,
affirmed (P)Ba2
....Junior Subordinate Medium-Term
Note Program, affirmed (P)Ba3
....Other Short Term, affirmed (P)NP
..Outlook Action:
....No Outlook assigned
Issuer: TOTTA (IRELAND) p.l.c.
..Affirmation:
....Backed Commercial Paper, affirmed
NP
..Outlook Action:
....No Outlook assigned
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Maria Jose Mori
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
