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Fitch Revises Grupo Cooperativo Cajamar Outlook to Positive; Affirms at 'BB-'
April 7, 2017 / 4:54 PM / 8 months ago

Fitch Revises Grupo Cooperativo Cajamar Outlook to Positive; Affirms at 'BB-'

(The following statement was released by the rating agency) BARCELONA/LONDON, April 07 (Fitch) Fitch Ratings has revised the Outlook on Grupo Cooperativo Cajamar's (GCC) Long-Term Issuer Default Rating (IDR) to Positive from Stable. Fitch also affirms GCC's Long-Term IDR at 'BB-', Short-Term IDR at 'B' and Viability Rating (VR) at 'bb-'. At the same time, Fitch has affirmed the IDRs of GCC's central bank, Banco de Credito Social Cooperativo, S.A. (BCC) and GCC's largest cooperative bank, Cajamar Caja Rural, Sociedad Cooperativa de Credito. A full list of rating actions is at the end of this Rating Action Commentary. GCC is not a legal entity, but a cooperative banking group. Its 19 credit cooperatives and BCC are bound by a mutual support mechanism under which members mutualise 100% of profits and have a cross-support mechanism for capital and liquidity. Accordingly, Fitch assigns the same IDRs to the group members. KEY RATING DRIVERS IDRs AND VR GCC's IDRs and VR reflect the group's poor asset quality, the vulnerability of its capital to unreserved problem assets and the challenge the group faces to improve its core banking profitability. They also factor in its adequate funding and liquidity profile. The Positive Outlook on GCC's Long-Term IDR reflects Fitch's expectations that GCC's problem asset volume will continue to decline in line with recent trends, driven by larger recoveries and economic growth in Spain above the eurozone average. This will reduce capital vulnerability to unreserved problem assets. GCC's non-performing loan ratio remains high by national and international standards. However, it improved to 13.6% at end-2016, as recoveries, write-offs, sales and foreclosures outpaced new non-performing loans. The problem assets ratio including foreclosed assets was 18.7% at end-2016. Fitch expects asset-quality metrics to continue to improve due to further recovery of the Spanish economy and the stabilisation of the domestic property market. At end-2016 GCC's Fitch Core Capital (FCC) and fully loaded Common Equity Tier 1 ratios were acceptable at 10.8% and 11%, respectively. However, unreserved problem assets accounted for 176% of FCC, highlighting the bank's vulnerability to unexpected asset quality shocks. GCC's earnings were modest in 2016 and affected by EUR200 million provisions for interest rate floors. Profits have relied on non-recurrent items in recent years, mainly capital gains from the sale of government debt securities. GCC will be challenged to improve its core banking profitability. The group intends to increase lending to the SME and consumer sectors and enhance fee-income generation, which, combined with lower funding costs and cost control, should support earnings. GCC's funding structure is adequate for the group's business model, as loans are mainly funded with retail deposits. However, ECB funding remains higher than at peers and is largely used to finance the government bonds portfolio. The bank's liquidity position is acceptable in the context of relatively modest upcoming debt maturities. SUPPORT RATING AND SUPPORT RATING FLOOR GCC's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'No Floor' reflect Fitch's belief that senior creditors can no longer rely on receiving full extraordinary support from the sovereign if GCC becomes non-viable. The EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for resolving banks that is likely to require senior creditors to participate in losses, instead of or ahead of a bank receiving sovereign support. SUBORDINATED DEBT BCC's subordinated debt is notched down once from the group's VR for loss severity because of lower recovery expectations relative to senior unsecured debt. These securities are subordinated to all senior unsecured creditors. RATING SENSITIVITIES IDRS AND VR The ratings could be upgraded if GCC continues to reduce the stock of problem assets and builds additional loss-absorption buffers, resulting in a reduction of its capital's vulnerability to unreserved problem assets. Improved earnings from its banking business would also be rating positive. A negative asset quality shock, lack of further credible reduction of problem assets or a material weakening of profitability, although not envisaged by Fitch, would be rating negative. SUPPORT RATING AND SUPPORT RATING FLOOR An upgrade of the SR and upward revision of the SRF would be contingent on a positive change in the sovereign's propensity to support domestic banks. While not impossible, this is highly unlikely, in Fitch's view. SUBORDINATED DEBT The subordinated notes' rating is sensitive to changes to GCC's VR, which drives BCC's Long-Term IDR. The rating is also sensitive to a widening of notching if Fitch's view of the probability of non-performance increases relative to the probability of the group failing, as captured by its VR. The rating actions are as follows: Grupo Cooperativo Cajamar Long-Term IDR affirmed at 'BB-'; Outlook Revised to Positive from Stable Short-Term IDR affirmed at 'B' Viability Rating affirmed at 'bb-' Support Rating Affirmed at '5' Support Rating Floor affirmed at 'No Floor' Banco de Credito Social Cooperativo, S.A. Long-Term IDR affirmed at 'BB-'; Outlook Revised to Positive from Stable Short-Term IDR affirmed at 'B' Support Rating Affirmed at '5' Support Rating Floor affirmed at 'No Floor' Subordinated debt: affirmed at 'B+' Cajamar Caja Rural, Sociedad Cooperativa de Credito Long-Term IDR affirmed at 'BB-'; Outlook Revised to Positive from Stable Short-Term IDR affirmed at 'B' Commercial paper: affirmed at 'B' Contact: Primary Analyst Josu Fabo, CFA Director +34 93 494 3464 Fitch Ratings Espana, S.A.U. Avenida Diagonal 601 08028 Barcelona Secondary Analyst Fernando Sanchez Analyst +44 20 3530 1221 Committee Chairperson Olivia Perney Guillot Senior Director +33 1 44 29 91 71 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 _id=1021887 Solicitation Status here 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 <a href="">WWW.FITCHRATINGS.COM.. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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