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Fitch Affirms Santander Totta at 'BBB'; Outlook Stable
April 28, 2017 / 3:30 PM / 8 months ago

Fitch Affirms Santander Totta at 'BBB'; Outlook Stable

(The following statement was released by the rating agency) BARCELONA/LONDON, April 28 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Rating's (IDRs) of Santander Totta, SGPS, S.A. and Banco Santander Totta, S.A. (BST). The Outlook on these ratings is Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS, SENIOR DEBT AND SUPPORT RATING The IDRs of Santander Totta and its fully-owned bank subsidiary, BST, reflect Fitch's view that there is a high probability of support from its Spanish parent bank Banco Santander, S.A. (Santander; A-/Stable) if needed, given Santander Totta's activities in Portugal are strategically important to the group. This is reflected in the Support Ratings (SR) of '2'. The Long-Term IDRs of both entities stand at 'BBB' and are capped at two notches above that of the Portuguese sovereign (BB+/Stable), in line with the limitations on notching banks above the sovereign, as per Fitch's criteria. The Stable Outlooks on these IDRs mirror that of the sovereign. Available support from the parent is reflected in the higher of the two possible Short-Term IDRs for banks with a Long-term IDR of 'BBB'. VR Santander Totta's Viability Rating (VR) is underpinned by the bank's capitalisation, which provides a moderate buffer against the risks of operating in a vulnerable economic environment. The rating also factors in better-than-sector average asset quality indicators, its growing franchise, the benefits from being part of the Santander group in terms of management expertise and potential contingent funding, and the challenge of successfully integrating Banco Internacional do Funchal, S.A.'s (Banif) assets and liabilities acquired in late 2015. At end-2016, Santander Totta's capitalisation compared well with local peers, but remained vulnerable to risks arising from its operating environment. The entity's phased-in and fully loaded CET1 ratios stood at 15.7% and 14.9%, respectively, and, together with good coverage levels for impaired loans, provide meaningful buffers against unexpected asset quality shocks. The bank's asset quality metrics remain better than the sector average despite worsening in 2016 due to the lower quality of the loan portfolio acquired from Banif, which led to an increase in the credit-at-risk (CaR) to total loans ratio from 4.4% at end-2015 to 6.4% at end-2016. Fitch believes that the bank is well-placed to manage down these risks given its prudent risk-management approach. The Banif acquisition enhanced BST's national market share, revenue generation capacity and profitability. Profitability remained resilient in 2016, with higher fee and interest income offsetting an increase in operating expenses due to integration costs. While economic growth prospects are muted, Fitch expects further improvements in profitability metrics in the medium term, driven primarily by from lower retail deposits rates, Banif-related synergies and good cost control. Loan impairment charges should be manageable, although they remain sensitive to economic uncertainty. Fitch equalises theVRs) of Santander Totta and its wholly-owned banking subsidiary BST to reflect common supervision, moderate double leverage and the dominance of BST in the Santander Totta group. RATING SENSITIVITIES IDRS, SENIOR DEBT AND SUPPORT RATING The IDRs of Santander Totta and BST are sensitive to a change in the sovereign rating. The IDRs and the SR are also sensitive to a change in Fitch's assumptions around Santander's propensity or ability to support its Portuguese subsidiary. In a higher sovereign rating environment, these would likely be notched down once from the parent's IDR, underpinned by the strategic importance of the subsidiaries, but also supported by common branding, strong synergies and integration with the parent, and a wide range of shared risk management and operational policies and procedures. VR An upgrade of Santander Totta and BST's VRs would be contingent on an upgrade of the sovereign rating, together with improvements in asset quality and profitability. Conversely, asset quality deterioration or a reduction in capitalisation levels would be rating negative. Additionally, the VR of Santander Totta is also sensitive to an increase in double leverage. The rating actions are as follows: Santander Totta: Long-Term IDR: affirmed at 'BBB'; Outlook Stable Short-Term IDR: affirmed at 'F2' VR: affirmed at 'bb+' Support Rating: affirmed at '2' BST: Long-Term IDR: affirmed at 'BBB'; Outlook Stable Short-Term IDR: affirmed at 'F2' VR: affirmed at 'bb+' Support Rating: affirmed at '2' Senior unsecured debt: affirmed at 'BBB' Commercial paper: affirmed at 'F2' Contact: Primary Analyst Josu Fabo, CFA Director +34 93 494 3464 Fitch Ratings Espana, S.A.U. Avinguda Diagonal, 601, 2nd Floor 08028 Barcelona Secondary Analyst Arnau Autonell Associate Director +44 20 3530 1712 Committee Chairperson Bjorn Norrman Senior Director +44 20 3530 1330 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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