Madrid, April 19, 2018 -- Moody's Investors Service has today upgraded the following ratings
and assessments of Unicaja Banco (Unicaja): (1) the bank's deposit
ratings to Baa3/Prime-3 from Ba2/Not Prime; (2) the bank's
baseline credit assessment (BCA) and adjusted BCA to ba2 from ba3;
and (3) the bank's Counterparty Risk (CR) Assessment to Baa2(cr)/Prime-2(cr)
from Baa3(cr)/Prime-3(cr). The outlook on the long-term
deposit ratings has been changed to stable from positive.
Today's rating action reflects the continued de-risking and
strengthening of Unicaja's credit profile as confirmed by 2017 full-year
results and Moody's expectation that this trend will continue in
2018 underpinned by Spain's sound economic growth prospects.
The upgrade of the bank's deposit ratings also reflects (1) the
lower loss given failure faced by Unicaja's deposits, which
have benefited from the significant deleveraging of the bank's balance
sheet over the recent past and (2) the bank's 2018 funding plan
and debt amortization schedule.
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
---RATIONALE FOR UPGRADING THE BCA
The upgrade of Unicaja's BCA to ba2 from ba3 primarily reflects the bank's
improved credit fundamentals after the EUR756.8 million capital
increase completed in 2017 and the decline in the stock of non-performing
assets (NPA, non-performing loans + foreclosed real
estate assets). As a result, Unicaja's loss absorption
capacity (measured as NPAs over shareholders' equity and provisions)
significantly improved to 77.2% at end-December 2017
from 91.8% a year earlier.
Moody's key capital metric -- the TCE ratio -- increased
to 8.5% at end-December 2017 from 5.0%
at end-December 2016. Unicaja's regulatory capital
ratios have also improved although to a lesser extent than the TCE ratio,
as the bulk of the capital increase was earmarked to reimburse the FROB
(Spain's government recapitalization fund) the EUR604 million of contingent
capital securities that were injected into the bank's subsidiary
Espana Duero in 2013. At end-December 2017, Unicaja's
fully loaded Common Equity Tier 1 ratio stood at 12.8% compared
to 11.8% a year earlier.
Today's rating action also reflects Unicaja's improving asset
risk trends with the NPA ratio declining to 15.6% at end-December
2017 from 17.9% a year earlier. Despite these improvements,
that namely stem from recoveries and write-offs of NPLs and a significant
increase in foreclosed real estate assets disposals, Unicaja continues
to display a high level of problematic assets and is above the Spanish
system average that Moody's estimates at 14% (end-June
2017 latest data available). More positively, the rating
agency expects a further improvement in the bank's asset risk aided
by the country's sound economic growth prospects (Moody's
expects Spain's GDP to grow by 2.7% in 2018).
In upgrading the bank's BCA to ba2, Moody's also incorporates its
expectation of a gradual recovery in Unicaja's recurring earnings on the
back of lower funding costs and the positive impact derived from the repayment
of the CoCos to the FROB, which carried a high interest cost of
EUR60 million per year. Furthermore, the rating agency expects
additional cost savings and synergies from the announced integration of
its subsidiary Espana Duero into Unicaja.
Unicaja's ba2 BCA is also underpinned by the bank's sound liquidity position,
with a large and stable deposit base (representing 79% of total
funding at end-December 2017) and sizeable liquid assets.
---RATIONALE FOR UPGRADING THE DEPOSIT RATINGS
The upgrade of Unicaja's deposit ratings to Baa3/Prime-3 from Ba2/Not
Prime reflects: (1) The upgrade of the bank's BCA and adjusted BCA
to ba2 from ba3; (2) the result from the rating agency's Advanced
Loss-Given Failure (LGF) analysis which results in two notches
of uplift for the deposits ratings; and (3) Moody's assessment of
low probability of government support for Unicaja, which results
in no uplift for the deposit ratings.
Taking account of the bank's balance sheet structure at end-December
2017 and its 2018 funding plan and debt redemption schedule, the
rating agency's LGF Analysis indicates that the bank's deposits are likely
to face a very low loss-given failure, due to the loss absorption
provided by subordinated debt, as well as the volume of deposits
themselves. This results in a Preliminary Rating Assessment (PRA)
of baa3 for deposits two notches above the BCA. This is higher
than under the previous analysis, which was based on data as of
end-December 2016 and resulted in a one notch uplift from the BCA,
mainly because of the decline in the amount of tangible assets as a consequence
of Unicaja's sizable balance sheet deleveraging.
---RATIONALE FOR THE STABLE OUTLOOK
The outlook on Unicaja's long-term deposit ratings is stable,
reflecting Moody's expectation that the bank will be able to maintain
a gradual improvement on its credit profile, namely by further reducing
its stock of problematic assets and progressively improving its very modest
profitability.
The stable outlook on the bank's deposit ratings also takes into
consideration its 2018 funding plan as well as debt amortizations over
the next 12 to 18 months.
WHAT COULD CHANGE THE RATING - UP
Unicaja's standalone BCA could be adjusted upwards if the bank (1)
further improves its loss absorbing buffers in relation to its stock of
problematic assets; (2) achieves a sustainable recovery in its recurring
earnings with a visible improvement in profitability metrics; and/or
(3) materially improves its asset risk with a substantial reduction across
all problematic asset classes.
Unicaja's deposit ratings could also be upgraded upon the issuance of
very sizable volumes of senior or subordinated debt instruments.
WHAT COULD CHANGE THE RATING - DOWN
Downward pressure on the bank's standalone BCA could result from:
(1) a reversal of the currently improving asset risk trends; and/or
(2) a weakening of Unicaja's internal capital generation.
Any change to the BCA would likely also affect the bank's deposit
ratings, as they are linked to the BCA.
LIST OF AFFECTED RATINGS
Issuer: Unicaja Banco
..Upgrades:
....Adjusted Baseline Credit Assessment,
upgraded to ba2 from ba3
....Baseline Credit Assessment, upgraded
to ba2 from ba3
....Long-term Bank Deposits,
upgraded to Baa3 Stable from Ba2 Positive
....Short-term Bank Deposits,
upgraded to P-3 from NP
....Long-term Counterparty Risk Assessment,
upgraded to Baa2(cr) from Baa3(cr)
....Short-term Counterparty Risk Assessment,
upgraded to P-2(cr) from P-3(cr)
..Outlook Actions:
....Outlook changed to Stable from Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
September 2017. 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.
Maria Jose Mori
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
