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TEXT-S&P lowers Bankinter L-T rtg to 'BB';otlk neg
November 23, 2012 / 8:56 AM / 5 years ago

TEXT-S&P lowers Bankinter L-T rtg to 'BB';otlk neg

(The following statement was released by the rating agency)

Nov 23 -


-- We now see higher economic risk for banks operating in Spain following the rapid deterioration of the sovereign’s creditworthiness, which has been reflected in our rating actions on Spain, including our recent two-notch downgrade.

-- In our view Spanish banks face increased credit risk as Spain’s weakening economy, public sector cuts, austerity measures, and high unemployment will likely hamper the creditworthiness and resilience of public and private sector borrowers.

-- In light of the higher credit risk in the economy, we believe Bankinter’s capital position has deteriorated according to our methodology. Additionally, we see imbalances in its funding profile, which in our view are counterbalanced by the funding support it receives from the European Central Bank.

-- We are lowering our long-term rating on Bankinter to ‘BB’ from ‘BB+’ and removing it from Credit Watch negative. We are affirming the ‘B’ short-term rating.

-- We are also lowering our issue ratings on Bankinter’s preferred stock to ‘CCC+’ from ‘B’, and removing them from CreditWatch negative.

-- The negative outlook reflects our view that the difficult economic and operating conditions in Spain could lead to a deterioration of Bankinter’s stand-alone credit profile.

Rating Action

On Nov. 23, 2012, Standard & Poor’s Ratings Services lowered to ‘BB’ from ‘BB+’ its long-term counterparty credit rating on Spain’s Bankinter S.A. (Bankinter) and removed it from CreditWatch with negative implications, where we placed it on Oct. 16, 2012. At the same time, we affirmed our ‘B’ short-term counterparty credit rating on the bank. The outlook is negative.

We also lowered our issue ratings on Bankinter’s dated subordinated debt to ‘B’ from ‘BB-', and on its preferred stock to ‘CCC+’ from ‘B’. We removed these ratings from CreditWatch negative, where we placed them on the same date.


The downgrade follows our review of the wider implications for economic risk 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).

Consequently, we also revised down our anchor, the starting point for our ratings on financial institutions operating primarily in Spain, to ‘bb+’ from ‘bbb-'.

In light of the higher credit risk, we believe Bankinter’s capital position has deteriorated, according to our methodology. We now expect that Bankinter’s risk-adjusted capital (RAC) ratio, before diversification adjustments, will not reach 5% at the end of 2013. As a result, we have lowered our assessment of the bank’s capital and earnings to “weak” from “moderate.”

We have also reviewed the funding and liquidity of Spanish banks, aiming to differentiate our assessments of these factors for the banks, in line with the approach communicated earlier this year (see “ECB’s Funding ”Bazooka“ Gives Eurozone Banks Time To Reshape Their Business Models And Balance Sheets,” published on Feb. 29, 2012, and “CreditWatch Actions On Four Spanish Banks On Potential Implications Of State Recapitalization,” published on Aug. 7, 2012). The review resulted in the lowering of our assessment of Bankinter’s funding to “below average” from “average,” while we have maintained our view on liquidity as “adequate.”

Our revised assessment of Bankinter’s funding assessment reflects our view that, notwithstanding the growing weight of retail financing in the past few years, the bank’s overall funding structure remains more imbalanced than the average of its rated domestic peers. This is partly due to what we view as its higher dependence on capital market financing. We have also taken into account that Bankinter maintains what we view as a higher-than-average use of European Central Bank (ECB) funding, which makes it vulnerable to the difficulties of reducing use of these funds, depending on deleveraging trends and funding conditions in both domestic and international markets.

Our revised assessments of the bank’s capital and earnings and funding profile led us to lower our assessment of Bankinter’s stand-alone credit profile to ‘bb-’ from ‘bb+'. However, we only lowered the long-term rating by one notch, rather than two. This is because we now incorporate one notch of short-term support in the ratings to reflect our view that the ongoing access to ECB funding facilities, particularly the long-term refinancing operations (LTROs), creates time for Bankinter to continue rebalancing its funding profile to a more sustainable position.

We have not changed our assessment of other factors of Bankinter’s SACP and therefore maintain our view of its “moderate” business position, and “strong” risk position, as our criteria define the terms.

The downgrade of Bankinter’s preferred stock and subordinated debt was triggered by the lowering of the bank’s SACP.


The negative outlook reflects the possibility that we could downgrade Bankinter if we lowered our assessment of its SACP. This could occur if the operating environment in Spain became more difficult than we currently anticipate. We could also lower Bankinter’s SACP if we saw that the bank was unable to rebalance its funding structure and significantly reduce its reliance on ECB funding so that, by the time LTROs expire, we anticipated that it would likely maintain a comparatively high reliance on short-term central bank funding.

We might consider taking a positive rating action if economic and operating conditions in Spain improved or if the bank continue to transform and strengthen its business model. If the bank manages to successfully reduce its reliance on central bank financing, while not accumulating other imbalances on its funding profile, all other things being equal, the ratings on the bank would likely remain unchanged. This is because we would likely improve our assessment of the bank’s funding to “average” and remove the one-notch uplift for short-term funding support.

Ratings Score Snapshot

To From

Issuer Credit Rating BB/Negative/B BB+/Watch Neg/B

SACP bb- bb+

Anchor bb+ bbb-

Business Position Moderate (-1) Moderate (-1)

Capital and Earnings Weak (-1) Moderate (-1)

Risk Position Strong (+1) Strong (+1)

Funding and Liquidity Below Average Average

and Adequate (-1) and Adequate (0)

Support +1 0

GRE Support 0 0

Group Support 0 0

Sovereign Support 0 0

Short-Term Support +1 0

Additional Factors 0 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

-- Group Rating Methodology And Assumptions, Nov. 9, 2011

-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011

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

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

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

Ratings List

Downgraded; CreditWatch/Outlook Action; Ratings Affirmed

To From

Bankinter S.A.

Counterparty Credit Rating BB/Negative/B BB+/Watch Neg/B

Certificate Of Deposit BB/B BB+/Watch Neg/B

Downgraded; CreditWatch/Outlook Action

To From

Bankinter S.A.

Senior Unsecured BB BB+/Watch Neg

Subordinated B BB-/Watch Neg

Bankinter Emisiones, S.A. Unipersonal

Preferred Stock* CCC+ B/Watch Neg

Ratings Affirmed

Bankinter S.A.

Commercial Paper B

Bankinter Sociedad de Financiacion, S.A

Commercial Paper* B

*Guaranteed by Bankinter S.A.

NB. This list does not include all ratings affected.

Our Standards:The Thomson Reuters Trust Principles.
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