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TEXT-S&P affirms BBVA 'BBB-/A-3' ratings; outlook negative
November 23, 2012 / 8:35 AM / 5 years ago

TEXT-S&P affirms BBVA 'BBB-/A-3' ratings; outlook negative

7 Min Read

Rationale

The affirmations follow our review of the wider implications for economic and industry risk in the Spanish banking sector of our two-notch downgrade of the Kingdom of Spain (BBB-/Negative/A-3) on Oct. 10, 2012. We believe banks operating in Spain face higher credit risk, not only from their increasing exposure to a weaker public sector, but also owing to a riskier, less resilient private sector, which will suffer the effects of the economic recession, austerity measures, and high unemployment.

To reflect the higher credit risk we now see in the Spanish market we lowered our Banking Industry Country Risk Assessment (BICRA) for Spain to group '6' from '5' and revised our economic risk score, a component of the BICRA, to '7' from '6' (see "Various Rating Actions On Spanish Banks Due To Rising Economic Risks," published Nov. 23, 2012).

The affirmation reflects our opinion that BBVA's business and financial profiles will remain consistent with our current ratings even after it absorbs the negative impact of what we see as increased economic risk in the Spanish economy.

Our view of the increased economic risks that Spanish banks face, resulting from their exposure to higher credit risks than we previously expected, had no impact in our assessment of BBVA's stand-alone credit profile (SACP), which remains unchanged at 'bbb+'. BBVA continues to have wide geographic and business diversification and solid internal capital generation, which are helping the bank to absorb the negative impact of what we see as increased economic risk in the Spanish economy.

We have kept our anchor for BBVA unchanged at 'bbb-'. BBVA has a wide presence in several countries outside Spain, namely Mexico, the U.S., and Latin America, which has offset the negative effect of increased economic risk in Spain (where BBVA concentrates about 55% of its customer loans) in our calculation of BBVA's weighted average economic risk.

We have maintained our views of BBVA's "strong" business position, "moderate" capital and earnings, "very strong" risk position, "above average" funding, and "adequate" liquidity, as our criteria define these terms.

Our ratings on BBVA remain at the same level as our sovereign ratings on Spain. We seldom rate financial institutions above the foreign currency sovereign rating on the country where they are based because we consider that there is a strong connection between banks' creditworthiness and that of their country of domicile.

We seldom rate financial institutions above the foreign currency rating of the country where they are based. In the rare cases when we do, such as this one, we generally limit the rating differential between the sovereign rating and the bank rating to one notch, as we see a strong connection between banks' creditworthiness and that of their country of domicile.

Outlook

The negative outlook on BBVA reflects the possibility that we could lower the ratings if, all other factors remaining equal, we were to lower our ratings on Spain.

In light of the challenging operating environment in Spain, we could revise down BBVA's SACP in the future, reflecting for example even tougher domestic conditions. We might also consider lowering BBVA's SACP if BBVA underperformed our expectations for recurrent profitability and asset quality.

Any significant acquisitions--either domestic or international--that we believe could heighten BBVA's risk position and weaken its asset quality, profitability, or capital, could also have negative implications for our view of the bank's SACP.

Given the current two-notch gap between BBVA's SACP and its ratings, we consider it unlikely at present that a downward SACP revision would trigger a downgrade of the bank.

An outlook revision to stable on BBVA would hinge on a similar action on Spain.

Ratings Score Snapshot

Issuer Credit Rating BBB-/Negative/A-3

SACP bbb+

Anchor bbb-

Business Position Strong (+1)

Capital and Earnings Moderate (-1)

Risk Position Very Strong (+2)

Funding Above Average (0)

Liquidity Adequate (0)

Support 0

GRE Support 0

Group Support 0

Sovereign Support -2

Additional Factors 0

Related Criteria And Research

-- Various Rating Actions On Spanish Banks Due To Rising Economic Risks, Nov. 23, 2012

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011

-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011

-- Bank Capital Methodology And Assumptions, Dec. 6, 2010

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- General Criteria: Nonsovereign Ratings That Exceed EMU Sovereign

Ratings: Methodology And Assumptions, June 14, 2011

-- Various Rating Actions on Spanish Financial Institutions Following

Sovereign Downgrade, Oct. 15, 2012

-- Spain Ratings Lowered to 'BBB-/A-3' On Mounting Economic And Political Risks; Outlook Negative, Oct. 10, 2012

Ratings List

Ratings Affirmed

Banco Bilbao Vizcaya Argentaria S.A.

Counterparty Credit Rating BBB-/Negative/A-3

Certificate Of Deposit BBB-/A-3

Banco Bilbao Vizcaya Argentaria S.A.

Senior Unsecured BBB-

Subordinated BB+

Certificate Of Deposit A-3

Commercial Paper A-3

B.B.V. Finance (DE) Inc.

Commercial Paper* A-3

BBVA Capital Finance, S.A. Unipersonal

Preferred Stock* BB-

Preference Stock* BB-

BBVA Capital Funding Ltd.

Subordinated* BB+

BBVA Commercial Paper Ltd.

Commercial Paper* A-3

BBVA Global Finance Ltd.

Senior Unsecured* BBB-

Subordinated* BB+

BBVA Global Markets B.V.

Senior Unsecured* BBB-

BBVA International Ltd.

Preference Stock* BB-

BBVA International Preferred, S.A. Unipersonal

Preferred Stock* BB-

BBVA Senior Finance, S.A. Unipersonal

Senior Unsecured* BBB-

BBVA Subordinated Capital, S.A. Unipersonal Subordinated* BB+

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

Senior Unsecured* BBB-

Bex America Finance Inc.

Commercial Paper* A-3

*Guaranteed by Banco Bilbao Vizcaya Argentaria S.A.

NB. This list does not include all ratings affected.

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