Rating action follows lowering of Portugal's Macro Profile to "Moderate --"from "Moderate"
Madrid, September 22, 2016 -- Moody's Investors Service has today affirmed Banco Santander Totta S.A.'s
(BST) deposit ratings at Baa3/Prime-3, senior debt ratings
at Ba1 and Commercial Paper rating at NP. The ratings of the subordinated
program and junior subordinated program issued by Banco Santander Totta
S.A., London have also been affirmed at (P)Ba2 and
(P)Ba3 respectively.
At the same time, Moody's has affirmed the bank's baseline credit
assessment (BCA) at ba3, adjusted BCA at ba1, and counterparty
risk assessment (CR Assessment) at Baa3(cr)/Prime-3(cr).
The outlook on the bank's long-term deposit and senior debt ratings
remains stable.
Today's rating action was prompted by Moody's lowering Portugal's
Macro Profile to "Moderate --" from "Moderate"
that reflects Moody's expectations of a slower-than-anticipated
growth of the Portuguese economy in 2016 and 2017 (Please see http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1012474,
published on 22 September 2016).
Further, the ratings and outlooks of all other Moody's rated
Portuguese banks are unaffected by the country's lower Macro Profile.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
(1) CHANGE IN THE MACRO PROFILE TO 'MODERATE-' FROM 'MODERATE'
The change of Portugal's Macro Profile to "Moderate-"
from "Moderate" has the potential to negatively affect rated
Portuguese banks' BCAs. The Macro Profile constitutes an
assessment of the macroeconomic environment in which a bank operates and
is designed to capture system-wide factors that are predictive
of the propensity of banks to fail.
The lowering of Portugal's Macro Profile to 'Moderate-' from 'Moderate'
illustrates Moody's assessment of a weakening in Portuguese banks'
operating environment as reflected in the country's weaker economic
growth prospects, persisting high leverage of the private sector
and vulnerable funding conditions.
The Portuguese economy has experienced a significant slowdown over the
past several quarters, with Q2 2016 GDP growing by just 0.9%
year-on-year (similar to Q1 2016). This compares
to an annual growth rate of 1.5% in Q2 2015 and 1.7%
in Q1 2015. After a temporary boost to private consumption in Q1,
as households benefitted from the restoration of public-sector
pay, income tax cuts and a hike in the minimum wage, consumption
growth has slowed significantly in the second quarter. In addition,
investment has contracted for two quarters now, while net trade
contributed positively to growth again in Q2. Given the weak first
half of the year, Moody's has revised down its full-year
real GDP growth forecast to just 1.1% compared to 1.5%
previously. The rating agency also expects growth in 2017 to be
weaker at 1.3% compared to 1.8% before.
Portuguese corporates remain among the most highly leveraged in Europe,
with total debt for non-financial corporations standing at 111%
of GDP at the end of 2015. Moody's considers that persistently
high private sector leverage levels will continue to constrain domestic
banks' asset risk and business volumes.
Moody's also notes that Portuguese banks funding conditions could
be challenged by the risk that Portuguese banks could have restricted
access or at very high costs to the wholesale funding markets in case
of need owing to their very weak credit fundamentals and serious challenges
faced by some of the country's largest banks.
As a result of the revised assessment of the operating conditions for
banks and the lowering of Portugal's Macro Profile, Moody's
has affirmed the ratings and outlooks of BST while the ratings and outlooks
of all other Moody's rated Portuguese banks remain unaffected by
today's rating action.
(2) RATIONALE FOR THE AFFIRMATION OF BST's RATINGS
Moody's affirmed BST's Baa3/Prime-3 deposit and Ba1
senior debt ratings with a stable outlook on the long-term ratings.
The action was driven by: (1) the affirmation of the bank's
ba3 BCA, reflecting Moody's expectations that the bank's
credit profile will remain resilient despite Portugal's less favorable
operating environment; (2) unchanged high parental support assumptions
from Spanish Banco Santander S.A. (Spain) (A3/A3 stable;
baa1), reflected in the affirmed ba1 adjusted BCA; and (3)
the result from the rating agency's Advanced loss-given failure
(LGF) analysis leading to one notch of additional ratings uplift for the
deposit ratings and no further uplift for the debt ratings.
In affirming BST's ba3 BCA, Moody's takes into account
the bank's resilient credit risk profile despite the deterioration
of its asset risk metrics that followed the acquisition of EUR11.1
billion of assets and liabilities from BANIF-Banco Internacional
do Funchal, S.A. (Banif, unrated) in December
2015. At end-June 2016, BST's non-performing
loan (NPL) ratio rose to 10.5% after integrating Banif's
loan portfolio, which is an increase of 300 basis points (bps) relative
to the 7.5% reported at year-end 2015. The
weak 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 have been used to reinforce provisioning
cushions. BST's weakened 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)
after the two recent capital increases for an amount of EUR600 million
that were ultimately subscribed by its parent Banco Santander S.A.
(2) improving profits (BST's net income over tangible assets was
0.9% at end-June 2016) despite very weak trends in
the domestic market; and (3) improved liquidity position owing to
rising deposits and a lower reliance on European Central Bank (ECB) funding.
The outlook on the long-term deposit and senior debt ratings is
stable, reflecting BST's resilient credit profile despite the expected
pressure on the bank's credit fundamentals that could arise as a
result of Portugal's weak economic growth prospects.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on BST's BCA could result if the bank shows progress
in improving its asset risk metrics and/or further improves its solvency
levels.
Downward pressure on BSTs BCA could develop if the bank's financial
fundamentals deteriorate to the extent that its overall risk-absorption
capacity weakens from current levels.
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 Bank Deposits,
affirmed Baa3 Stable
....Senior Unsecured Regular Bond/Debenture,
affirmed Ba1 Stable
....Senior Unsecured MTN, affirmed (P)Ba1
....Short-term Bank Deposits,
affirmed P-3
....Commercial Paper, affirmed NP
....Other Short Term, affirmed (P)NP
....Adjusted Baseline Credit Assessment,
affirmed ba1
....Baseline Credit Assessment, affirmed
ba3
..Outlook Actions:
....Outlook, Remains Stable
Issuer: Banco Santander Totta S.A., London
....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
....Junior Subordinate Medium-Term
Note Program, affirmed (P)Ba3
....Subordinate Medium-Term Note Program,
affirmed (P)Ba2
....Other Short Term, affirmed (P)NP
..Outlook Actions:
....No Outlook assigned
Issuer: TOTTA (IRELAND) p.l.c.
....Backed Commercial Paper, affirmed
NP
..Outlook Actions:
....No Outlook assigned
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Ratings 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
