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
