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Rating Action:

Moody's upgrades BBVA's ratings to Baa2; outlook positive on long-term ratings

04 Mar 2014

Actions follow upgrade of Spain's government bond rating to Baa2 positive

NOTE: On March 10, 2014, the press release was revised as follows: In the RATINGS RATIONALE section, corrected the debt list of Outlook Actions to “Maintained at Stable” for the following issuers: - BBVA Capital Finance, S.A Unipersonal - BBVA International Limited - BBVA International Pref S.A. Unipersonal - BBVA Subordinated Capital, S.A. Unipersonal - BBVA Capital Funding Limited. Revised release follows.

Madrid, March 04, 2014 -- Moody's Investors Service has today upgraded to Baa2 from Baa3 the debt and deposit ratings of Banco Bilbao Vizcaya Argentaria, S.A.'s (BBVA) and changed the outlook to positive from stable. At the same time, Moody's upgraded BBVA's standalone Bank Financial Strength Rating (BFSR) to C- (equivalent to a baa2 baseline credit assessment (BCA)) from D+/baa3 and its short-term rating to Prime-2 from Prime-3. The outlook on the bank's BFSR remains stable.

The rating actions reflect (1) the improvement in the Spanish government's creditworthiness, reflected in Moody's upgrade of Spain's government bond rating to Baa2 from Baa3 and the concurrent change of the outlook on Spain's rating to positive from stable on 21 February 2014. For full details, please refer to the sovereign press release (https://www.moodys.com/research/Moodys-upgrades-Spains-government-bond-rating-to-Baa2-assigns-positive--PR_292078); and (2) BBVA's resilient credit fundamentals underpinned by its stable revenue-generation capacity, its high risk-adjusted profitability and its capacity to generate capital and liquidity in times of stress.

RATINGS RATIONALE

--- RATIONALE FOR UPGRADING THE DEBT RATING

The upgrade of BBVA's debt and deposit ratings follows the raising of the bank's standalone BCA to baa2 from baa3.

--- RATIONALE FOR RAISING THE BCA

The upgrade of BBVA's BCA follows the upgrade of Spain's sovereign rating to Baa2 positive. At the baa2 BCA level, the ratings fully reflect BBVA's current credit profile which excludes the effects of credit linkage with the sovereign, meaning that the BCA is no longer constrained by Spain's rating. Previously, BBVA's high exposure to its domestic market meant that its BCA could not have been higher than the sovereign rating for Spain when it was rated Baa3.

Today's rating action also incorporates BBVA's strong and diversified pre-provisioning earnings that have allowed the bank to absorb substantial credit costs over the last several years while continuing to build its capital base, despite the challenging operating environment in Spain (Spanish loan portfolio represents 55% of the group's total loan book). In particular, since the beginning of the crisis, and despite the group's strong provisioning effort, BBVA has increased by more than 580 basis points its core capital ratio that stood at 11.6% at end-2013 and has reported a 5.6% leverage ratio (fully-loaded and as per CRDIV criteria). In view of this internal capital generation capacity Moody's believes that even a moderate further increase in BBVA's non-performing loan (NPLs) would still allow for a standalone BCA of baa2, especially if the moderate recovery in Spain continues.

The moderate improvement of the domestic operating environment should lead to a further improvement of the bank's financial fundamentals over the next 12-18 months. The changes in asset quality and profitability trends are already visible in BBVA's Q4 2013 performance. Gross NPLs have stabilised at the group level and in its domestic franchise, and new NPL formation is decreasing. Furthermore, domestic recurrent pre-provision income has started to increase after several quarters of negative pressure.

At close to 76% of shareholders equity and loan loss reserves, the group's problematic exposures (broadly defined as NPLs, real-estate assets and refinanced loans) remain high and remain a key factor underpinning constraining the current standalone BCA.

Moody's views of BBVA's resilient creditworthiness were already reflected in the rating action published on 11 February 2014, when we stabilized the outlook on BBVA's ratings (https://www.moodys.com/research/Moodys-changes-outlook-on-BBVAs-Baa3-ratings-to-stable-from--PR_292268). At that time, however, the bank's BCA was capped by the rating of the Spanish government.

The outlook on the bank's standalone BFSR remains stable. This reflects Moody's view that the downside risks to the bank's credit profile have substantially diminished in the context of the gradual economic recovery in Spain.

--- RATIONALE FOR CHANGING THE OUTLOOK ON DEBT AND DEPOSIT RATINGS TO POSITIVE

The positive outlook on BBVA's debt and deposit ratings reflects the positive outlook on Spain's debt rating and thus the potential positive impact on BBVA's ratings if Spain's ratings were to be upgraded.

In accordance with Moody's joint default analysis methodology, BBVA's senior depositors and bondholders will very likely benefit from systemic (government) support given its importance in the Spanish banking system. However, at the current government's rating levels BBVA's debt rating does not benefit from any systemic support uplift because BBVA's BCA is at the same level as the sovereign rating.

SUBORDINATED DEBT AND HYBRID RATINGS

In line with the raised BCA, Moody's has today upgraded the bank's senior subordinated debt ratings to Baa3 from Ba1 and the preference shares' ratings to Ba3 (hyb) from B1 (hyb). The outlook on these ratings remains stable.

WHAT COULD MOVE THE RATING UP/DOWN

BBVA's standalone BCA could come under upward pressure from a continued improvement of its financial performance, primarily a reduction of its stock of non-performing loans (including real estate and refinanced loans), especially in relation to its shock absorbers (equity and loan loss reserves) and improving profitability in its principal place of business, Spain.

At the current level, Spain's rating does not constrain BBVA's ratings. However, BBVA's ratings are unlikely to exceed Spain's government bond rating as BBVA remains heavily exposed to the domestic market with 55% of the group's loan book in Spain. Moreover, while the bank's credit linkage to Spain's Baa2 government debt ratings has reduced somewhat, because its exposure to the Spanish sovereign -- including loans and receivables to sub-sovereigns -- has declined in the second half of 2013 while its capital base continues to improve, linkage remains material at current levels of exposure.

Downward pressure on BBVA's BCA could develop following (1) inadequate risk-absorption capacity (i.e., recurring earnings, excess capital and loan loss reserves) compared with Moody's estimated credit losses; (2) inability to withstand Moody's liquidity stress test; (3) a lower share of recurring earnings; and (4) a fall of the Spanish economy back into recession and/or its international activities perform weaker than anticipated. Negative pressure on the rating could also result from a downgrade of the Spanish government ratings currently at Baa2 positive.

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. An upgrade of Spain's rating could also have positive implications on BBVA's debt and deposit ratings given its systemic importance.

Upgrades:

..Issuer: Banco Bilbao Vizcaya Argentaria, S.A.

.... Adjusted Baseline Credit Assessment, Upgraded to baa2 from baa3

.... Baseline Credit Assessment, Upgraded to baa2 from baa3

.... Bank Financial Strength Rating, Upgraded to C- from D+

.... Issuer Rating, Upgraded to Baa2 from Baa3

.... Deposit Rating, Upgraded to P-2 from P-3

....Multiple Seniority Medium-Term Note Program, Upgraded to (P)P-2 from (P)P-3

....Multiple Seniority Medium-Term Note Program, Upgraded to (P)Baa3 from (P)Ba1

....Multiple Seniority Medium-Term Note Program, Upgraded to (P)Baa2 from (P)Baa3

....Subordinate Regular Bond/Debenture, Upgraded to Baa3 from Ba1

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

....Senior Unsecured Deposit Rating, Upgraded to Baa2 from Baa3

..Issuer: Banco Bilbao Vizcaya Argentaria, SA London Br

.... Deposit Rating, Upgraded to P-2 from P-3

....Senior Unsecured Commercial Paper, Upgraded to P-2 from P-3

....Senior Unsecured Deposit Rating, Upgraded to Baa2 from Baa3

..Issuer: Banco Bilbao Vizcaya Argentaria, SA Paris Br

.... Deposit Rating, Upgraded to P-2 from P-3

....Senior Unsecured Deposit Program, Upgraded to P-2 from P-3

....Senior Unsecured Deposit Rating, Upgraded to Baa2 from Baa3

..Issuer: Banco de Credito Local de Espana, S.A.

....Multiple Seniority Medium-Term Note Program, Upgraded to (P)Baa2 from (P)Baa3

..Issuer: BBVA Capital Funding Limited

....Multiple Seniority Medium-Term Note Program, Upgraded to (P)Baa3 from (P)Ba1

....Subordinate Regular Bond/Debenture Oct 16, 2015, Upgraded to Baa3 from Ba1

....Subordinate Shelf, Upgraded to (P)Baa3 from (P)Ba1

..Issuer: BBVA Capital Finance, S.A. Unipersonal

....Pref. Stock Non-cumulative Preferred Stock, Upgraded to Ba3 (hyb) from B1 (hyb)

..Issuer: BBVA Global Finance Ltd.

....Multiple Seniority Medium-Term Note Program, Upgraded to (P)P-2 from (P)P-3

....Multiple Seniority Medium-Term Note Program, Upgraded to (P)Baa2 from (P)Baa3

....Subordinate Regular Bond/Debenture Dec 1, 2025, Upgraded to Baa3 from Ba1

....Senior Unsecured Shelf, Upgraded to (P)Baa2 from (P)Baa3

..Issuer: BBVA Global Markets B.V.

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)P-2 from (P)P-3

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)Baa2 from (P)Baa3

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

..Issuer: BBVA International Limited

....Pref. Stock Non-cumulative Preferred Stock, Upgraded to Ba3 (hyb) from B1 (hyb)

..Issuer: BBVA International Pref S.A. Unipersonal

....Pref. Stock Non-cumulative Preferred Stock, Upgraded to Ba3 (hyb) from B1 (hyb)

..Issuer: BBVA Senior Finance, S.A. Unipersonal

....Senior Unsecured Commercial Paper, Upgraded to P-2 from P-3

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)P-2 from (P)P-3

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)Baa2 from (P)Baa3

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

..Issuer: BBVA Subordinated Capital, S.A. Unipersonal

....Multiple Seniority Medium-Term Note Program, Upgraded to (P)Baa3 from (P)Ba1

....Subordinate Regular Bond/Debenture, Upgraded to Baa3 from Ba1

..Issuer: BBVA U.S. Senior, S.A. Unipersonal

....Senior Unsecured Commercial Paper, Upgraded to P-2 from P-3

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)P-2 from (P)P-3

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)Baa2 from (P)Baa3

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

..Issuer: BCL International Finance Limited

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

Outlook Actions:

..Issuer: Banco Bilbao Vizcaya Argentaria, S.A., Changed To Positive(m) From Stable

..Issuer: Banco Bilbao Vizcaya Argentaria, SA London Br, Changed To Positive From Stable

..Issuer: Banco Bilbao Vizcaya Argentaria, SA Paris Br, Changed To Positive From Stable

..Issuer: Banco de Credito Local de Espana, S.A., Changed To Positive From Stable

..Issuer: BBVA Capital Finance, S.A Unipersonal, Maintained at Stable

..Issuer: BBVA Capital Funding Limited, Maintained at Stable

..Issuer: BBVA Global Finance Ltd., Changed To Positive(m) From Stable

..Issuer: BBVA Global Markets B.V., Changed To Positive From Stable

..Issuer: BBVA International Limited, Maintained at Stable

..Issuer: BBVA International Pref S.A. Unipersonal, Maintained at Stable

..Issuer: BBVA Senior Finance, S.A. Unipersonal, Changed To Positive From Stable

..Issuer: BBVA Subordinated Capital, S.A. Unipersonal, Maintained at Stable

..Issuer: BBVA U.S. Senior, S.A. Unipersonal, Changed To Positive From Stable

..Issuer: BCL International Finance Limited, Changed To Positive From Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings 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 Cabanyes
Senior Vice President
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 upgrades BBVA's ratings to Baa2; outlook positive on long-term ratings
No Related Data.
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