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5/19/2015
Fitch Ratings | Press Release
Fitch Downgrades 5 Spanish Banks on Support Revision Ratings Endorsement
Policy 19 May 2015 11:49 AM (EDT)
Fitch Ratings­Barcelona­19 May 2015: Fitch Ratings has downgraded the Long­term Issuer Default Ratings
(IDRs) of Bankia, S.A. to 'BB+' from 'BBB­', and of Banco Mare Nostrum, S.A. (BMN) and Liberbank, S.A. to 'BB'
from 'BB+'. At the same time, Banco Popular Espanol S.A. (Popular) and Grupo Cooperativo Cajamar (GCC)
have been downgraded to Long­term IDR 'BB­', from 'BB+' and 'BB', respectively.
The Outlooks are Positive for Bankia and Popular, and Stable for BMN, Liberbank and GCC. Prior to today's
rating action, the Negative Outlooks had reflected Fitch's view of the reducing likelihood of support from the
sovereign for these banks' senior creditors. A full list of rating actions is available at the end of this rating action
commentary.
The rating actions are in conjunction with Fitch's review of sovereign support for banks globally, which the
agency announced in March 2014. In line with its expectations announced in March last year and
communicated regularly since then, Fitch believes legislative, regulatory and policy initiatives have
substantially reduced the likelihood of sovereign support for US, Swiss and European Union commercial banks.
As a result, Fitch believes that, in line with our Support Rating (SR) definition of '5', extraordinary external
support while possible can no longer be relied upon for any of the banks listed above. We have, therefore,
downgraded their SRs to '5' from '2' for Bankia and to '5' from '3' for Popular, BMN, Liberbank and GCC and
revised their Support Rating Floors (SRFs) to 'No Floor' from 'BBB­' for Bankia, from 'BB+' for Popular, BMN and
Liberbank and from 'BB' for GCC.
As a result of the revision to the SRFs, these banks' Long­term IDRs are now driven by their standalone
creditworthiness as expressed in their respective Viability Ratings (VRs), which have been affirmed at 'bb+' for
Bankia, 'bb' for BMN and Liberbank, and 'bb­' for Popular and GCC.
Simultaneously, Fitch has downgraded BFA, Tenedora de Acciones, S.A.U.'s (BFA, Bankia's holding company)
SR to '5' from '3' and has revised its SRF to 'No Floor' from 'BB'. BFA's other ratings, including its VR­driven
Long­term IDR at 'BB' with a Positive Outlook, are unaffected by this rating action.
The rating actions are also part of a periodic portfolio review of a number of Spanish banking groups rated by
Fitch. The sector continues to recover, supported by improved macro­economic trends. GDP grew modestly by
1.4% in 2014 and we expect this to accelerate to 2.5% in 2015 and 2.3% in 2016. Better economic prospects
should help temper pressure on banks' asset quality, which Fitch expects to have peaked during 2014, and,
indirectly on earnings, including through reduced provisioning needs.
However, downside risks for banks remain, for example if unemployment stays stubbornly high and the property
market remains depressed despite some recent signs of improvement, thus hampering a more meaningful
economic recovery. Fitch also expects pre­impairment income from core banking activities to remain subdued
in a low interest rate environment, partially offset by lower funding costs, that is also still characterised by muted
volumes, despite early signs of recovery. Funding and liquidity profiles are generally sound and most banks
have enhanced their capitalisation.
KEY RATING DRIVERS ­ IDRS, VR AND SENIOR DEBT
Bankia's IDRs, senior debt ratings and VR reflect a fairly large although declining problem asset portfolio. This
leaves the bank's capitalisation, although strengthened, still vulnerable to shocks to asset prices or economic
deterioration.
However, Bankia's VR also considers improvements to profitability, supported by efficiency gains achieved from
the execution of restructuring targets ahead of plan. However, earnings have so far significantly relied on
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interest earned from securities funded by ECB funds. Bankia's main challenge is to expand its SME footprint
and rebuild core banking earnings.
The bank's funding and liquidity profile continues to improve, primarily due to deposit growth and regained debt
capital market access. But reliance on the ECB for funding will remain high as it is used to fund a large stock of
legacy fixed­income securities, including those related to the transfer of real estate assets to Spain's bad bank
(SAREB). Liquidity reserves are adequate for scheduled debt repayments.
BFA's IDR is notched down once from Bankia's because Fitch believes that the former's strategy is to gradually
reduce its majority ownership. Other factors driving BFA's ratings include potential litigation exposure, a
moderate double­leverage ratio and a manageable debt maturity profile given its stock of unencumbered
assets.
The Positive Outlook on Bankia's Long­term IDR reflects upside rating potential as the bank continues to reduce
the stock of problem assets and further strengthen capital. The Outlook on BFA's Long­term IDR is also Positive,
mirroring that of Bankia.
Popular's IDRs, senior debt ratings and VR factor in the bank's weak asset quality, due to a large exposure to
problematic real estate development assets. This in turn puts pressure on its internal capital generation
capacity and leaves capital vulnerable to additional collateral valuation shocks. The ratings also reflect
Popular's strong SME banking franchise in Spain, which provides healthy recurrent revenues, and the bank's
adequate funding and liquidity position.
The Positive Outlook on Popular's Long­term IDR reflects upside rating potential, largely related to a positive
reversal in its asset quality trend. Fitch expects new non­performing loan (NPL) entries to decline and loan
recoveries and foreclosed asset sales to accelerate over the next 12 to 18 month, which should ease pressure
on the bank's capital base.
BMN's and Liberbank's IDRs, senior debt ratings and VRs reflect their strong regional franchises, improved
capitalisation, adequate funding and liquidity and progress made in their restructuring, resulting in efficiency
gains. The ratings also factor in these banks' still weak but improving asset quality, with a large proportion of
restructured loans at BMN (largely relating to individuals) and a large legacy portfolio of problematic assets
under an asset protection scheme (APS) at Liberbank.
The Stable Outlooks on BMN's and Liberbank's Long­term IDRs reflect Fitch's expectation that their credit
profiles are set to further stabilise, supported by an improved macro­economic environment.
GCC's IDRs, senior debt ratings and VR reflect its weaker­than­sector average asset quality metrics and the
vulnerability of its capital base to unreserved problem assets (over 1.5x Fitch Capital Core (FCC)). GCC's NPL
ratio remains high, but sizeable capital gains on the sale of assets, including the real estate management
subsidiary, supported the group's additional provisioning efforts and internal capital generation at end­2014.
The Stable Outlook on GCC's Long­term IDR assumes that the bank will continue to focus on managing its
problem assets, extending the downward trend seen since end­2013 during which the NPL reserve coverage
ratio has strengthened.
RATING SENSITIVITIES ­ IDRS, VR AND SENIOR DEBT
The banks' IDRs and senior debt ratings are sensitive to a change in their VRs. The ratings could be upgraded
if there is a sustained reduction in problem assets while preserving capital. Further consolidation of the positive
economic trends in Spain and better prospects for its property market would help to accelerate foreclosed asset
sales and loan recoveries, ultimately benefitting the ratings. At the same time, improvements in core revenue
generation and lower provisioning needs could provide relief to bottom­line earnings and thus improve their
internal capital generation capacity.
Conversely, these ratings could be downgraded primarily if Fitch perceives renewed pressures on asset quality
and hence on earnings and capital. Fitch does not currently factor into its ratings any potential changes related
to the treatment of deferred tax assets. However, in the event of the removal of the explicit state­guarantee on
the recoverability of a portion of the banks' deferred tax assets the ratings may come under pressure as this
would, in some cases, affect the banks' capital measures.
BFA's ratings are sensitive to the same considerations that might drive a change in Bankia's ratings. In addition,
BFA's ratings could be affected by a change in shareholding, a lower value or liquidity of its investments and/or
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by higher debt levels and double­leverage.
KEY RATING DRIVERS AND SENSITIVITIES ­ SUPPORT RATING AND SUPPORT RATING FLOOR The SR and SRF reflect Fitch's view that senior creditors can no longer rely on receiving full extraordinary
support from the sovereign in the event that any of these banks becomes non­viable.
In Fitch's view, the EU's Bank Recovery and Resolution Directive (BRRD) and the Single Resolution
Mechanism (SRM) are now sufficiently progressed to provide a framework for resolving banks that is likely to
require senior creditors participating in losses, if necessary, instead of or ahead of a bank receiving sovereign
support. In the EU, BRRD has been effective in member states since 1 January 2015, including minimum loss
absorption requirements before resolution financing or alternative financing (eg, government stabilisation
funds) can be used. Full application of BRRD, including the bail­in tool, is required from 1 January 2016. The
Spanish law for the restructuring and resolution of banks was enacted in 2012. Fitch expects BRRD to be
transposed into national legislation in the next few months, with full application from January 2016.
Any upgrade to the SR and upward revision to the SRF would be contingent on a positive change in the
sovereign's propensity to support its banks. While not impossible, this is highly unlikely in Fitch's view.
KEY RATING DRIVERS AND SENSITIVITIES ­ SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid capital issued by Bankia and by Popular and its issuing vehicles are all
notched down from their respective VRs in accordance with Fitch's assessment of each instrument's respective
non­performance and relative loss severity risk profiles, which vary considerably. They have, therefore, been
affirmed due to the affirmation of both banks' VR. Their ratings are primarily sensitive to any change in Bankia's
and Popular's VRs respectively.
Bankia's and Popular's subordinated (lower Tier 2) debt issues are rated one notch below the respective banks'
VRs to reflect the below­average loss severity of this type of debt compared with average recoveries.
Popular's preference shares are rated three notches below the bank's VR to reflect the higher loss severity risk
of these securities (two notches) compared with average recoveries as well as moderate risk of non­
performance relative to its VR (one notch). The coupon on these instruments can be paid out of distributable
reserves.
SUSBIDIARY AND AFFILIATED COMPANY ­ KEY RATING DRIVERS AND SENSITIVITIES
Banco CLM's IDRs and senior debt ratings are aligned with Liberbank's as Fitch views it as an integral part of
Liberbank's core business. Banco CLM is highly integrated into the group and strengthens the bank's franchise
in Castilla­La Mancha and provides geographical diversification to the group. Banco CLM, a 75%­owned bank
subsidiary of Liberbank, is the spun­off banking business of the failed Caja de Ahorros de Castilla­La Mancha
(CCM) and is fully consolidated into the group's accounts.
Banco CLM's IDRs are sensitive to those of Liberbank and/or to any change in the level of relative importance
of Banco CLM within the group, which Fitch sees as unlikely.
Banco de Credito Social Cooperativo S.A. (BCC) is the central institution of GCC and as such its IDRs, SR and
SRF mirror those of the banking group. At the same time the IDRs of Cajas Rurales Unidas, SCC (CRU), the
largest member of the group, are equalised with those of GCC. BCC's and CRU's ratings are sensitive to any
change in the ratings of GCC.
KEY RATING DRIVERS AND SENSITIVITES ­ STATE­GUARANTEED DEBT BFA's state­guaranteed debt issues have been affirmed at 'BBB+', in line with Spain's Long­term IDR. State­
guaranteed debt issues are senior unsecured instruments that bear the full guarantee of Spain. Consequently,
its ratings are the higher of the issuer's Long­term IDR and Spain's Long­term IDR.
BFA's state­guaranteed debt rating is sensitive to changes to Spain's sovereign ratings.
The rating actions are as follows: Bankia:
Long­term IDR: downgraded to 'BB+' from 'BBB­'; Outlook Positive Short­term IDR: downgraded to 'B' from 'F3' Viability Rating: affirmed at 'bb+'
Support Rating: downgraded to '5' from '2'
Support Rating Floor: revised to 'No Floor' from 'BBB­' https://www.fitchratings.com/creditdesk/press_releases/detail.cfm?print=1&pr_id=984912
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Long­term senior unsecured debt: downgraded to 'BB+' from 'BBB­'
Commercial paper: downgraded to 'B' from 'F3' Subordinated debt: affirmed at 'BB'
BFA:
Long­term IDR: unaffected at 'BB'; Outlook Positive Short­term IDR: unaffected at 'B'
Viability Rating: unaffected at 'bb' Support Rating: downgraded to '5' from '3'
Support Rating Floor: revised to 'No Floor' from 'BB'
Long­term senior unsecured debt: unaffected at 'BB'
State­guaranteed debt: unaffected at 'BBB+'
Popular: Long­term IDR: downgraded to 'BB­' from 'BB+'; Outlook Positive Short­term IDR: affirmed at 'B'
Viability Rating: affirmed at 'bb­'
Support Rating: downgraded to '5' from '3' Support Rating Floor: revised to 'No Floor' from 'BB+'
Long­term senior unsecured debt programme: downgraded to 'BB­' from 'BB+'
Short­term senior unsecured debt programme and commercial paper: affirmed at 'B' Subordinated lower Tier 2 debt: affirmed at 'B+'
BPE Financiaciones S.A.:
Long­term senior unsecured debt and debt programme (guaranteed by Popular): downgraded to 'BB­' from
'BB+'
Short­term senior unsecured debt programme (guaranteed by Popular): affirmed at 'B'
BPE Preference International Limited: Preference shares: affirmed at 'B­'
Popular Capital, S.A.
Preference shares: affirmed at 'B­'
BMN:
Long­term IDR: downgraded to 'BB' from 'BB+'; Outlook Stable Short­term IDR: affirmed at 'B'
Viability Rating: affirmed at 'bb' Support Rating: downgraded to '5' from '3' Support Rating Floor: revised to 'No Floor' from 'BB+' Commercial paper Long­term rating: downgraded to 'BB' from 'BB+' Commercial paper Short­term rating: affirmed at 'B'
Senior unsecured debt Long­term rating: downgraded to 'BB' from 'BB+' Senior unsecured debt Short­term rating: affirmed at 'B'
Liberbank:
Long­term IDR: downgraded to 'BB' from 'BB+'; Outlook Stable Short­term IDR: affirmed at 'B'
Viability Rating: affirmed at 'bb'
Support Rating: downgraded to '5' from '3' Support Rating Floor: revised to 'No Floor' from 'BB+'
Banco CLM: Long­term IDR: downgraded to 'BB' from 'BB+'; Outlook Stable Short­term IDR: affirmed at 'B'
Support Rating: affirmed at '3' Senior unsecured debt: downgraded to 'BB' from 'BB+'
GCC (formerly Grupo Cooperativo Cajas Rurales Unidas):
Long­term IDR: downgraded to 'BB­' from 'BB', Outlook Stable Short­term IDR: affirmed at 'B'
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Viability Rating: affirmed at 'bb­'
Support Rating: downgraded to '5' from '3' Support Rating Floor: revised to 'No Floor' from 'BB'
BCC:
Long­term IDR: downgraded to 'BB­' from 'BB', Outlook Stable Short­term IDR: affirmed at 'B'
Support Rating: downgraded to '5' from '3' Support Rating Floor: revised to 'No Floor' from 'BB'
CRU:
Long­term IDR: downgraded to 'BB­' from 'BB', Outlook Stable Short­term IDR: affirmed at 'B'
Senior unsecured Short­term debt: affirmed at 'B'
Contact:
Primary Analysts
Cristina Torrella (Bankia, BFA)
Senior Director
+34 93 323 8405
Fitch Ratings Espana S.A.U.
Paseo de Gracia, 85 7th Floor
08008 Barcelona
Josep Colomer, CFA (BMN, Liberbank, CLM) Director
+34 93 323 8416
Fitch Ratings Espana S.A.U.
Paseo de Gracia, 85 7th Floor
08008 Barcelona
Roger Turro (GCC, BCC, CRU, Popular, BPE Financiaciones S.A., BPE Preference International Limited,
Popular Capital, S.A.) Director
+34 93 323 8406
Fitch Ratings Espana S.A.U.
Paseo de Gracia, 85 7th Floor
08008 Barcelona
Secondary Analysts
Josep Colomer, CFA (Bankia, BFA) Director
+34 93 323 8416
Josu Fabo, CFA (Liberbank, CLM, Popular, BPE Financiaciones S.A., BPE Preference International Limited,
Popular Capital, S.A.))
Director
+44 20 3530 1513
Belen Vazquez (GCC, BCC, CRU)
Associate Director
+44 20 3530 1504
Arnau Autonell (BMN)
Analyst
+44 20 3530 1712
Committee Chairperson Erwin Van Lumich, CFA
Managing Director
+34 93 323 8403
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Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: [email protected].
Additional information is available on www.fitchratings.com
Applicable criteria, Global Bank Rating Criteria, 20 March 2015, are available on www.fitchratings.com.
Applicable Criteria and Related Research: Global Bank Rating Criteria Additional Disclosure Solicitation Status
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