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Rating Action:

Moody's upgrades Bankinter´s ratings

18 Jul 2019

Madrid, July 18, 2019 -- Moody's Investors Service ("Moody's") has today upgraded the long-term deposit ratings of Bankinter, S.A. (Bankinter) to A3 from Baa1 and its long-term senior unsecured debt ratings to Baa1 from Baa2. The outlook on these ratings has been changed to stable from positive. The rating agency has also upgraded the bank's (1) baseline credit assessment (BCA) and adjusted BCA to baa2 from baa3; (2) subordinated debt rating to Baa3 from Ba1; (3) preferred stock rating to Ba2(hyb) from Ba3(hyb); and (4) Counterparty Risk Ratings (CR ratings) to A2/Prime-1 from A3/Prime-2. The Counterparty Risk Assessment (CR Assessment) has been affirmed at A3(cr)/Prime-2(cr).

Bankinter's short-term programme and deposit ratings are unaffected by today's rating action and remain at Prime-2.

Today's rating action was prompted by the institution's improved asset risk and Moody's expectation that it will show further improvement in the next 12 to 18 months.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

---RATIONALE FOR UPGRADING THE BCA

The upgrade of Bankinter's BCA to baa2 from baa3 reflects the bank's solid credit performance, particularly in terms of asset risk, which Moody's expects to further improve over the next 12 to 18 months. Although at a slower pace than domestic peers largely exposed to legacy problematic assets, Bankinter has still been able to reduce its stock of problem loans since they peaked in Q1 2014. With an NPL ratio of 3.1% compared to a system average of 5.4% as of March 2019, the bank not only performs stronger than the system in terms of problem loan exposure, but also in terms of repossessed real estate assets which represented 0.7% of gross loans as of year-end 2018 compared to a system average of 3.6%.

In upgrading Bankinter's BCA to baa2, the rating agency has also taken into consideration the bank's strong profitability metrics relative to domestic and European peers. The bank's net income/tangible assets stood at 0.7% in 2018, which compares with a domestic system and European Union average of 0.5% and 0.44% respectively. Moreover, the bank's earnings have a low reliance on the less recurrent trading income, which represented less than 5% of its total operating income in 2018. A further strengthening of the bank's profitability levels will nevertheless prove difficult, in light of the persistent low interest rate environment, the already very low cost of credit and the pressure on operating expenses from technology and innovation investments.

With a Moody's Tangible Common Equity (TCE) ratio of 10.8% at year-end 2018, Bankinter's capital ratios compare weakly to those of similarly rated peers. Moreover, the acquisition of Spanish lender Evo Banco, that Bankinter closed in May 2019, will detract 29 basis points of common equity tier 1 capital ratio. Despite the bank's modest capital ratios, in upgrading the BCA Moody's acknowledges the bank's solid profitability levels as an internal source of capital generation, and its large capital buffer against regulatory requirements, with Bankinter showing one of the lowest SREP requirements among Spanish rated banks.

---RATIONALE FOR UPGRADING THE LONG-TERM DEPOSITS AND SENIOR DEBT RATINGS

The upgrade of Bankinter's long-term deposits and senior debt ratings to A3 and Baa1 respectively reflect: (1) the upgrade of the bank's BCA and adjusted BCA to baa2 from baa3; (2) the outcome from the rating agency's Advanced Loss-Given Failure (LGF) analysis, which results in two notches and one notch of uplift for the deposits and senior debt ratings respectively; and (3) Moody's unchanged assessment of a low probability of government support for Bankinter, resulting in no rating uplift.

The LGF analysis takes into account Bankinter's three-year funding plan, whereby the bank plans to comply with Minimum Requirement for own funds and Eligible Liabilities (MREL).

---RATIONALE FOR AFFIRMING THE CR ASSESSMENT

As part of today's rating action, Moody's has also affirmed the CR Assessment of Bankinter at A3(cr)/Prime-2(cr), which is constrained by Spain's sovereign rating. Under Moody's methodology, the CR Assessment will not typically exceed the sovereign's own rating by more than one notch.

---RATIONALE FOR THE STABLE OUTLOOK

The outlook on Bankinter's long-term deposit and senior unsecured debt ratings is stable, reflecting Moody's view that the current ratings already capture the expected performance of the bank's financial fundamentals.

WHAT COULD CHANGE THE RATING - UP

Bankinter's BCA could be upgraded primarily as a consequence of stronger TCE and leverage ratios, combined with a funding profile which is less reliant on market funding. Because the bank's debt and deposit ratings are linked to its BCA, a positive change in its BCA would likely affect its ratings.

The deposit and senior unsecured debt ratings could also be upgraded if the bank changes its current liability structure, indicating that these securities would face a lower loss given failure.

WHAT COULD CHANGE THE RATING - DOWN

Downward pressure on the bank's BCA could result from (1) a reversal in the current asset-risk trends, with an increase in its stock of nonperforming loans (NPLs) or other problematic exposures, or both; (2) a weakening in Bankinter's internal capital-generation and risk-absorption capacity as a result of lower profitability levels; and (3) higher reliance of the bank's funding profile on market funding.

The deposit and senior unsecured debt ratings could also be downgraded because of changes in the bank's liability structure, indicating a higher loss given failure for these securities.

LIST OF AFFECTED RATINGS

Issuer: Bankinter, S.A.

..Upgrades:

....Long-term Counterparty Risk Ratings, upgraded to A2 from A3

....Short-term Counterparty Risk Ratings, upgraded to P-1 from P-2

....Long-term Bank Deposits, upgraded to A3 from Baa1, outlook changed to Stable from Positive

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

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

....Senior Unsecured Regular Bond/Debenture, upgraded to Baa1 from Baa2, outlook changed to Stable from Positive

....Senior Unsecured Medium-Term Note Program, upgraded to (P)Baa1 from (P)Baa2

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

....Subordinate Medium-Term Note Program, upgraded to (P)Baa3 from (P)Ba1

....Preferred Stock Non-cumulative, upgraded to Ba2(hyb) from Ba3(hyb)

..Affirmations:

....Long-term Counterparty Risk Assessment, affirmed A3(cr)

....Short-term Counterparty Risk Assessment, affirmed P-2(cr)

..Outlook Action:

....Outlook changed to Stable from Positive

Issuer: Bankinter Sociedad de Financiacion, S.A.

..Upgrades:

....Backed Long-term Commercial Paper, upgraded to (P)Baa1 from (P)Baa2

..No Outlook assigned

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating 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.

Alberto Postigo
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
Client Service: 44 20 7772 5454

Carola Schuler
MD - Banking
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.
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