February 9, 2017 / 3:34 PM / 10 months ago

Fitch Upgrades Banco BPI to 'BBB-' on Institutional Support

(The following statement was released by the rating agency) BARCELONA, February 09 (Fitch) Fitch Ratings has upgraded Banco BPI S.A.'s Long-Term Issuer Default Rating (IDR) to 'BBB-' from 'BB', removed it from Rating Watch Evolving and assigned a Stable Outlook. The bank's Short-term IDR has been upgraded to 'F3' from 'B' and removed from Rating Watch Positive. Its Support Rating has been upgraded to '2' from '5' and removed from Rating Watch Positive. The rating actions follow the increase in Caixabank S.A.'s (BBB/Positive) stake in Banco BPI to 84.5% in February 2017. The agency has also affirmed Banco BPI's Viability Rating (VR) at 'bb' and removed it from Rating Watch Negative (RWN) because Banco BPI lost control over its Angolan subsidiary, Banco de Fomento Angola (BFA) following the sale of 2% of the shares to the majority owner of the bank and changes in BFA's governance structure. Thus we believe Banco BPI has taken the necessary steps to deconsolidate BFA and address a breach of its regulatory large exposure limit. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS IDRS, SENIOR DEBT AND SUPORT RATING Banco BPI's IDRs, senior debt ratings and Support Rating reflect a high probability of support from ultimate parent, Caixabank (BBB/Positive), in case of need. Fitch believes Portugal is a strategically important market for Caixabank as demonstrated by the longstanding investment in Banco BPI (minority stake held since 1995) and its willingness to take control of the bank despite the related capital consumption and the difficulties inherent in a cross-border acquisition. Banco BPI's Long-Term IDR is capped one notch above that of Portugal. 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 Banco BPI's impact on Caixabank's overall risk and returns profile. The bank's Support Rating Floor has been affirmed and withdrawn because the primary source of support for the bank is now considered by Fitch to be Caixabank, rather than Portugal. VR Our assessment of capitalisation has a high influence on Banco BPI's VR. The bank's capitalisation is acceptable for the Portuguese operating environment and the bank maintains moderate buffers over regulatory CET1 and T1 requirements. However, the bank calculates that it needs to issue EUR206 million of subordinated debt to maintain 25bps buffer over the total capital ratio SREP requirement for 2017. This deficit should be easy to close with Caixabank as its new majority shareholder. Banco BPI's asset quality is better than domestic peers' but remains vulnerable to changes in the tough Portuguese operating environment. At end-2016 the bank reported a credit at-risk ratio of 3.7%, well below the domestic peer average. The NPL ratio under the European Banking Authority's (EBA) definition was 8.2% at end-June 2016, which compares well with domestic peers' but was still weaker than the weighted average 5.5% NPL ratio of the EU banks in EBA's Risk Dashboard. The VR also reflects the bank's generally stable funding profile and acceptable liquidity position. At end-2016 the bank's domestic operations had a gross loans/deposits ratio of 106% and large liquidity buffers relative to upcoming wholesale debt maturities. The regulatory liquidity coverage ratio for domestic activities was a sound 181% at end-2016. We believe ownership by Caixabank will be supportive of the bank's funding and liquidity profile. The VR also factors in the bank's highly variable earnings profile, which have historically been supported materially by BFA's profits. Despite some improvements in core, domestic revenues and loan impairment charges in 2016, Banco BPI's cost/income ratio remained high. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by Banco BPI have been upgraded to reflect potential support from Caixabank. Subordinated debt is notched down once from Banco BPI's IDR for loss severity. Banco BPI's preference shares are capped at the level assigned to equivalent securities issued by the parent. SUBSIDIARY COMPANY The ratings of Banco Portugues de Investimento (BPI) have been upgraded to Long-Term IDR 'BBB-'/Stable, Short-Term IDR 'F3' and Support Rating '2. The IDRs are equalised with those of its 100% parent, Banco BPI. As well as its 100% ownership by Banco BPI, BPI's integration with and role within its parent bank mean there is a high probability of it being supported. We believe support from Caixabank would be allowed to flow through to BPI. 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 SUPORT RATING Banco BPI's IDRs and senior debt ratings and Support Rating would likely be downgraded if Portugal is downgraded or if Fitch has reason to believe that Banco BPI has become less strategically important to Caixabank. Banco BPI's Long-Term IDR and senior debt ratings could be upgraded if the Long-Term IDRs of both Portugal and Caixabank are upgraded. VR The bank's VR is sensitive to developments in profitability, asset quality and capital. The VR could be upgraded if the bank improves its operating efficiency while improving or maintaining its asset quality metrics. This would result in a better internal capital generation capacity that would strengthen the bank capital buffers over the regulatory minimum requirements. Conversely the VR could be downgraded if the bank's asset quality or core earnings metrics deteriorate sharply, weakening solvency. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Banco BPI's subordinated and hybrid instruments are 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: upgraded to 'BBB-' from 'BB', removed from Rating Watch Positive (RWP), Outlook Stable Short-Term IDR: upgraded to 'F3' from 'B', removed from RWP Viability Rating: affirmed at 'bb', removed from RWN Support Rating: upgraded to '2' from '5', removed from RWP Support Rating Floor: affirmed at 'No Floor', withdrawn Senior unsecured debt: upgraded to 'BBB-' from 'BB', removed from RWP Senior unsecured debt short-term rating: upgraded to 'F3' from 'B', removed from RWP Lower Tier 2 subordinated debt: upgraded to 'BB+' from 'BB-', removed from RWP Preference shares: upgraded to 'B+' from 'B', removed from RWP Banco Portugues de Investimento: Long-Term IDR: upgraded to 'BBB-' from 'BB', removed from RWP, Outlook Stable Short-Term IDR: upgraded to 'F3' from 'B', removed from RWP Support Rating: upgraded to '2' from '3', removed from RWP Contact: Primary Analyst Roger Turro Director +34 93 323 8406 Fitch Ratings Espana, S.A.U. Av. Diagonal, 601, 2nd Floor 08028 Barcelona Secondary Analyst Josu Fabo, CFA Director +34 93 494 3464 Committee Chairperson James Longsdon Managing Director +44 20 3530 1076 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1018781 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 WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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