December 21, 2017 / 4:15 PM / 8 months ago

Fitch Affirms Banco BPI's IDRs; Upgrades VR

(The following statement was released by the rating agency) BARCELONA, December 21 (Fitch) Fitch Ratings has affirmed Banco BPI S.A.'s Long-Term Issuer Default Rating (IDR) at 'BBB-' with a Positive Outlook. At the same time Fitch has upgraded the bank's Viability Rating (VR) to 'bb+' from 'bb'. A full list of rating actions is at the end of this rating action commentary. The rating actions are part of a periodic portfolio review of Portuguese banks rated by Fitch and follow the upgrade of Portugal's sovereign rating (see "Fitch Upgrades Portugal to BBB" dated 15 December 2017 at www.fitchratings.com). KEY RATING DRIVERS IDRS, SENIOR DEBT AND SUPPORT RATING The IDRs, senior debt ratings and Support Rating of Banco BPI reflect a high probability of support from its ultimate parent, CaixaBank, S.A. (BBB/Positive), in case of need. The Positive Outlook mirrors that of CaixaBank. Fitch believes Portugal is a strategically important market for CaixaBank as demonstrated by its longstanding investment in Banco BPI and its involvement in the design and implementation of the strategic objectives of its subsidiary. The sale in November 2017 of some of Banco BPI's insurance and corporate finance activities to its parent reflects further integration. Fitch believes CaixaBank's propensity to support Banco BPI is linked to Portugal's operating environment, since this affects the attractiveness of Banco BPI to the group and its impact on CaixaBank's overall risk and returns profile. VR The upgrade of Banco BPI's VR reflects the strengthening of the bank's regulatory capital ratios and the progress made in the implementation of the bank's cost restructuring plan. The VR also takes into account Banco BPI's stronger asset quality and funding profile than most domestic peers but still modest earnings generation. The VR also factors in the bank's adequate retail franchise in a small economy such as Portugal. The sale of some of Banco BPI's businesses to CaixaBank will strengthen the subsidiary's capital ratios by about 130bp by year-end. The bank estimates that its fully loaded common equity Tier 1 and total capital ratios would be 12.8% and 14.6% at end-September 2017 on a proforma basis, providing it with adequate buffers above regulatory minimum. Banco BPI's earnings have been highly variable and supported by material contributions from Banco de Fomento de Angola (BFA), its Angolan subsidiary, but which is now accounted at equity. In 2017, the bank has made progress in implementing its cost reduction plan, and underlying core banking earnings increased in 9M17, supported by lower operating costs and an improved operating environment in Portugal. We expect the bank's earnings generation capacity to further strengthen in 2018-2019, due to improved operating efficiency as integration synergies are achieved. Banco BPI's asset quality metrics are materially stronger than those of domestic peers and compare well with similarly-rated international peers. At end-September 2017 the bank reported a non-performing loan (NPL as per European Banking Authority's definition) ratio of 6.8%. The bank's funding and liquidity profile is adequate and stable, as reflected by a reasonable 117% loans/deposits ratio at end-June 2017. We believe the ownership by CaixaBank is supportive of the bank's funding and liquidity profile. SUBORDINATED DEBT Banco BPI's subordinated debt is notched down once from the bank's IDR for loss severity. SUBSIDIARY AND AFFILIATED COMPANY The IDRs of Banco Portugues de Investimento S.A. (BPI) are equalised with those of its parent, Banco BPI. As well as its 100% ownership by Banco BPI, BPI's integration with and role within Banco BPI mean there is a high probability of the subsidiary being supported. We believe support from CaixaBank would be allowed to flow through to BPI as reflected by the recent intragroup transaction that saw CaixaBank acquire some of BPI's businesses. Fitch does not assign a VR to this institution as the agency does not view it as an independent entity. RATING SENSITIVITIES IDRS, SENIOR DEBT AND SUPPORT RATING Banco BPI's Long-Term IDR and senior debt ratings could be upgraded if the Long-Term IDR of CaixaBank is upgraded. The ratings would likely be downgraded if CaixaBank's ability to provide institutional support is reduced, reflected by a downgrade of the parent's ratings, or if Fitch has reason to believe that Banco BPI has become less strategically important to CaixaBank. VR The VR could be upgraded if the bank improves its pre-impairment operating profitability beyond our expectations without compromising its risk appetite and asset quality metrics. Maintaining sound capital buffers over minimum requirements would also be positive for the rating. The VR could be downgraded if the bank's asset quality or core earnings metrics deteriorate sharply, weakening solvency. SUBORDINATED DEBT Banco BPI's subordinated debt rating is ultimately sensitive to a change in Caixabank's IDR. SUBSIDIARY AND AFFILIATED COMPANIES The ratings of BPI are sensitive to rating action on Banco BPI's IDRs. The rating actions are as follows: Banco BPI: Long-Term IDR: affirmed at 'BBB-', Outlook Positive Short-Term IDR: affirmed at 'F3' Viability Rating: upgraded to 'bb+' from 'bb' Support Rating: affirmed at '2' Senior unsecured debt long-term rating: affirmed at 'BBB-' Senior unsecured debt short-term rating: affirmed at 'F3' Lower Tier 2 subordinated debt: affirmed at 'BB+' Banco Portugues de Investimento: Long-Term IDR: affirmed at 'BBB-', Outlook Stable Short-Term IDR: affirmed at 'F3' Support Rating: affirmed at '2' Contact: Primary Analyst Josu Fabo Director +34 93 494 3464 Fitch Ratings Espana, S.A.U. Av. Diagonal, 601, 2nd Floor 08028 Barcelona Secondary Analyst Arnau Autonell Associate Director +44 20 3530 1712 Committee Chairperson Olivia Perney Guillot Senior Director +33 1 44 29 91 74 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. 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