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Rating Action:

Moody's assigns ratings to Portugal's Caixa Central de Credito Agricola Mutuo, CRL

27 Jul 2021

Madrid, July 27, 2021 -- Moody's Investors Service ("Moody's") has today assigned the following ratings and assessments to Caixa Central de Credito Agricola Mutuo, CRL (Caixa Central):

- Baseline Credit Assessment (BCA) of ba1

- Adjusted BCA of ba1

- Long-term deposit ratings of Baa3 with a stable outlook

- Short-term deposit ratings of Prime-3

- Long-term and short-term Counterparty Risk Assessments of Baa2(cr)/Prime-2(cr)

- Long-term and short-term Counterparty Risk Ratings of Baa2/Prime-2

The outlook assigned is stable.

These ratings and assessments reflect Caixa Central's key role within the Grupo Credito Agricola (GCA), which is made up of a network of cooperative banks and entails a solidarity mechanism enshrined in law. Today's rating action primarily reflects Moody's view on the creditworthiness of the GCA, with Caixa Central acting as the group's treasury and sole debt issuing entity.

RATINGS RATIONALE

-- RATIONALE FOR THE BCA AND ADJUSTED BCA

Caixa Central's BCA and Adjusted BCA of ba1 are built on GCA's consolidated financials, fully reflecting the solidarity mechanism that prevails between the group's cooperative members. In particular, the BCA of ba1 reflects GCA's high capitalization, which is constrained by the group's weak asset quality metrics, its modest recurrent bottom-line profitability and its sound funding and liquidity profile.

GCA's asset quality metrics, although improved over the last years, remain weak, and we expect they will deteriorate further amidst the current unsettled operating environment. The group's non-performing assets ratio (non-performing loans plus real estate assets) stood at a high 11.9% at end-December 2020, down from 13.6% a year earlier.

The full impact of borrower stress in Portugal will be visible once the support measures that were implemented in the country at the outset of the coronavirus crisis expire. Payment holiday programmes have been extended up to the end of December 2021 for legal moratoria.

As of the end of December 2020, GCA had €2.7 billion of loans under moratoria, representing a high 21% of the loan portfolio.

In rating Caixa Central, Moody's has also considered the high capitalization levels of the group. GCA's tangible common equity stood at 13.5% at the end of December 2020. However, this high capital level only partly offsets the weak asset quality, and results into a moderate loss absorption capacity for the group (measured as non-performing assets (NPA) over shareholders' equity and loan loss and real estate reserves) of 59% as of the end of December 2020, down from 71% a year earlier.

The assigned BCA also reflects GCA's modest recurrent bottom-line profitability. The rating agency believes that the difficult macroeconomic scenario will result in low operating revenue and a high cost of credit risk for GCA, which will trigger further deterioration in its profitability indicators. GCA reported a net profit of €87 million as of the end of December 2020 (equivalent to an annualised return on tangible assets of 0.37%), down by 34% compared with €132 million a year earlier.

GCA's has a sound funding and liquidity profile. The group has a large and stable deposit base, with customer resources representing 83% of the group's total funding as of the end of December 2020, and a loan/customer deposits ratio of 63% as of the same date. Until the end of 2023, we expect the group to tap the wholesale funding markets through Caixa Central to comply with its upcoming Minimum Requirement for Own Funds and Eligible Liabilities (MREL) requirement.

-- RATIONALE FOR THE DEPOSIT RATINGS

Caixa Central's Baa3/Prime-3 deposit ratings reflect: (1) the bank's standalone BCA and Adjusted BCA of ba1; (2) the result from our Advanced Loss Given Failure (LGF) analysis, which takes into account the severity of loss faced by the different liability classes in resolution, and which leads to a one-notch uplift for Caixa Central's long-term deposit ratings.

-- OUTLOOK

The stable outlook on Caixa Central's long-term deposit ratings incorporates Moody's view that over the next 12 to 18 months, GCA's fundamentals will not be overly affected by the ongoing coronavirus crisis. Furthermore, we expect Caixa Central to issue MREL eligible debt over the outlook period, which is already factored into our forward-looking view of the group's liability structure.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that could lead to an upgrade of Caixa Central's BCA include a combination of: (1) sustained improvements in GCA's asset risk; and (2) stronger recurring profitability for the group.

Factors that could lead to a downgrade of Caixa Central's BCA include: (1) a weakening of GCA's asset quality beyond our current expectations; (2) a significant lower recurring profitability for the group; and (3) permanent weakening of GCA's capitalisation.

As the bank's deposit ratings are linked to the BCA, an upgrade or downgrade of the BCA could trigger an upgrade or downgrade of these ratings. Furthermore, if the expected volumes of outstanding loss absorbing obligations protecting creditors and depositors in case of failure were to change, it could also lead to a change in the bank's deposit ratings. In particular, a lower than expected issuance of MREL eligible liabilities would trigger downward pressure on the bank's deposit ratings.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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 Vinuela
Vice President - Senior Analyst
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
Client Service: 44 20 7772 5454

Maria Cabanyes
Senior Vice President
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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