Madrid, April 01, 2014 -- Moody's Investors Service has today changed to stable from negative
the outlook on the Ba1 long-term senior debt and deposit ratings
of Spain's Kutxabank, S.A. and its subsidiary.
Concurrently, the long-term ratings were affirmed.
The change in outlook and affirmation of the Ba1 ratings follow the corresponding
outlook change to stable from negative of the bank's standalone
bank financial strength rating (BFSR) at D -- equivalent to a ba2
baseline credit assessment (BCA). The bank's short-term
ratings remain unchanged at Not Prime.
RATINGS RATIONALE
RATIONALE FOR CHANGING THE OUTLOOK TO STABLE
The change in outlook of Kutxabank's debt and deposit ratings to
stable from negative reflects the change in outlook of its standalone
rating.
The change in outlook of Kutxabank's standalone D BFSR to stable
from negative reflects Moody's view that the downside risks to the
bank's standalone rating have diminished. Throughout the
Spanish banking crisis and taking into account also the acquisition of
troubled savings bank Cajasur, Kutxabank has demonstrated a continuing
ability to generate capital internally despite significant growth of its
non-performing assets (non-performing loans (NPLs) and real
estate assets) and subdued business activities. In view of the
somewhat diminishing challenges from the operating environment,
Moody's expects that any further deterioration in asset quality
and related provisioning requirements is likely to be limited and commensurate
with a ba2 standalone risk profile. The outlook change to stable
for the bank's standalone rating reflects the combination of this
track record and resilience of Kutxabank's credit profile and the
stabilising economic backdrop.
RATIONALE FOR AFFIRMATION OF KUTXABANK'S RATINGS
Today's affirmation of Kutxabank's ratings has been driven
by Moody's view that the bank's risk absorption capacity remains
resilient despite pressure stemming from Spain's still weak operating
environment. In affirming the ratings, Moody's has
taken into account Kutxabank's demonstrated capacity to generate
capital from internal resources throughout the Spanish banking crisis,
and despite the strong provisioning effort in recent years. At
end-December 2013, the bank had increased its core capital
by 187bps, reaching a core Tier 1 ratio of 11.97%.
Furthermore, the bank disclosed a leverage ratio of 7% (fully
loaded and as per the European Commission's Fourth Capital Requirements
Directive (CRD-IV) criteria), and a fully loaded Common Equity
Tier 1 (CET1) ratio of 10.8% as at end-December 2013.
Moody's notes, that in view of these capital cushions,
it expects that Kutxabank's standalone baseline credit assessment
of ba2 will remain resilient even if further moderate increases in NPLs
materialise as the Spanish economy stabilises (i.e.,
Moody's forecasts GDP growth of 0.7% for 2014).
In Moody's view, the moderate recovery of the domestic operating
environment should underpin the resilience of Kutxabank's financial
fundamentals in 2014. The changes in asset quality trends are already
visible in the bank's performance, as gross NPLs stabilised
during 4Q 2013. Moody's expects bottom-line profitability
to start benefiting in 2014 from a lower level of credit impairments as
asset quality pressures start to ease. However, the rating
agency acknowledges that Kutxabank's pre-provision income
is likely to remain at modest levels because of the maintenance of very
low interest rates and subdued business levels.
At 123% of shareholders' equity and loan loss reserves,
Kutxabank's problematic exposures (broadly defined as NPLs,
real-estate assets and refinanced loans) remain high, a key
factor constraining the standalone BCA at ba2.
Kutxabank's debt ratings have been affirmed at Ba1, benefiting
from a one notch of uplift from its BCA of ba2, and based on Moody's
assessment of a moderate probability of support from the Spanish government
(Baa2, positive) in case of need.
SUBORDINATED DEBT
In line with the affirmation of Kutxabank's BFSR, Moody's
has today affirmed the bank's senior subordinated debt at Ba3,
and changed the outlook to stable from negative.
WHAT COULD MOVE THE RATING UP/DOWN
Kutxabank's standalone BCA could be raised if the bank is able to
(1) work out its asset-quality challenges, with a notable
decline in provisioning requirements, and (2) achieve a sustainable
recovery in its recurring earnings, with improved profitability
metrics (i.e., pre-provision income as %
of risk weighted assets consistently above 1.5%-2%).
Downward pressure could be exerted on the standalone BFSR by (1) an acceleration
in the trend of formation of NPLs, both on an absolute level and
in relation to the system average; (2) weakening of Kutxabank's
internal capital generation and risk-absorption capacity;
and/or (3) any worsening in operating conditions beyond Moody's
current expectations, (i.e., a broader economic
recession beyond the rating agency's current GDP forecast of 0.7%
GDP growth for 2014).
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Global Banks published
in May 2013. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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
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
SUBSCRIBERS: 44 20 7772 5454
Johannes Felix Wassenberg
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
Moody's changes outlook on Kutxabank's Ba1 ratings to stable from negative; affirms ratings
