DBRS Morningstar Confirms Bankinter’s A (low) LT Issuer Rating, Stable Trend

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Bankinter S.A. (Bankinter or the Bank), including the Long-Term Issuer Rating of A (low) and the Short-Term Issuer rating of R-1 (low). The trend on all ratings remains Stable. DBRS Morningstar has also maintained the Intrinsic Assessment (IA) of the Bank at A (low) and the Support Assessment at SA3. See a full list of ratings at the end of this press release.

KEY RATING CONSIDERATIONS

The confirmation reflects Bankinter’s solid financial performance despite the more challenging economic environment (driven by the Russian invasion of Ukraine and higher inflation) and its improved funding profile supported by consistent annual growth in customer deposits. Bankinter’s asset quality has remained solid and the Bank has one of the lowest non-performing loan (NPL) ratios among Spanish banks. In addition, the Bank’s profitability levels have remained resilient driven by strong commercial activity and high NII sensitivity to interest rates. Bankinter’s ratings also take into account its satisfactory capital position, in particular its strong capital generation capacity.

RATING DRIVERS

An upgrade of the Long-Term ratings would require a longer track record of good management of recent acquisitions whilst maintaining solid profitability and asset quality.

The Long-Term ratings could be downgraded if the Bank’s profitability experiences a sustained and significant deterioration or if asset quality materially worsens, impacting the Bank’s capital position.

RATING RATIONALE

Franchise Combined Building Block (BB) Assessment: Good

Bankinter’s A (low) rating is supported by the Bank’s solid franchise in Spain where it is the 6th largest banking group with total assets of around EUR 110 billion at end-Q3 2022. The Bank’s national market shares for loans and deposits were around 4% at end-June 2022. However, its position in private banking is more substantial with a larger domestic market share. Bankinter has completed a number of corporate transactions in recent years, including the acquisition of Barclays Portugal in 2016, the acquisition in 2019 of EVO Banco and its credit subsidiary in Ireland (Avant Money), and the transfer of Linea Directa (LDA) to its shareholders in April 2021. After the latter transfer, Bankinter still holds a 17.4% stake in LDA.

Earnings Combined Building Block (BB) Assessment: Good

DBRS Morningstar views Bankinter’s resilient profitability as a key rating consideration. Bankinter posted EUR 430 million of net attributable profit in 9M 2022 up 21% YoY (excluding the LDA spin-off impact in 2021) and the return on equity (RoE) was 11.8% (as calculated by DBRS Morningstar). 9M 2022 results were positively affected by Net Interest Income (NII) growth of 11.6% YoY, reflecting the positive impact of higher interest rates on the Bank’s loan book (70% of its mortgage book and around 60%-65% of its corporate book is at variable rates). Strong revenue growth offset a 5% growth in operating expenses in 9M 2022, which was largely driven by investment in the franchise. Loan loss provisions were down 8% YoY in 9M 2022 and the Cost of Risk stood at 34bps in Q3 2022. DBRS Morningstar also notes that Bankinter´s annualised operating income in 9M 2022 is now at around the same levels as before the LDA transfer. Bankinter has compensated for the loss in revenues due to the LDA transfer with revenues from its core business and from its new business lines which accounted for 14% of total revenues at end-September 2022 (Avant Money, Bankinter Portugal and EVO).

Risk Combined Building Block (BB) Assessment: Strong/Good

Despite the COVID-19 outbreak, Bankinter’s asset quality has remained sound, and stronger than its domestic peers, driven by the Bank’s low risk profile, sound risk management and high exposure to affluent individuals. The Bank’s NPL ratio was 2.1% at end-September 2022 (as calculated by DBRS Morningstar) and is well below the Spanish banking system. Total Non-Performing assets (NPAs, which include NPLs and foreclosed assets, FAs) represented 2.6% of total loans and FAs. DBRS Morningstar see as positive the current Stage 3 coverage levels which have increased significantly since the COVID-19 outbreak. Bankinter’s Stage 2 loans (exposures whose credit risk has significantly increased) have gone up during the pandemic and represents around 3.4% of its portfolio at Q3 2022 compared to 2.4% at end-2019. Despite this development, Bankinter has a lower proportion of Stage 2 than the average of Spanish banks (6.7% at end-June 2022) and EU Banks (9.5% at end-June 2022).

Other risks include portfolios affected by extraordinary measures during the COVID-19 outbreak. As of end-June 2022 the Bank has a portfolio of around EUR 6.4 billion of State Guaranteed Loans (mainly in Spain), which represents around 9% of its total loan portfolio. The bulk of those guarantees was assigned to SMEs loans and the current performance of the loans is better than anticipated. Another source of risk is the Bank´s fixed income portfolio which represented 10.5% of total assets at end-June 2022. Most of the fixed income portfolio is held in the amortised cost book (79% at early July 2022), reducing capital sensitivity to credit spread changes. Nevertheless, DBRS Morningstar notes that following the rapid increase in market interest rates, Bankinter’s fixed income portfolio includes EUR 850 million of unrealised losses at end-September 2022.

Funding and Liquidity Combined Building Block (BB) Assessment: Good

DBRS Morningstar considers Bankinter’s liquidity and funding as solid. DBRS Morningstar notes that Bankinter’s customer deposit base has grown by 10% YoY in Q3 2022. The Bank’s net loan to deposit (LTD) ratio, (as calculated by DBRS Morningstar) has also seen an improvement in recent years, and stood at around 92% at end-September 2022. The Bank’s LCR and NSFR ratios are also solid and remain above regulatory requirements. ECB funding represented around 14.5% of total funding at end-September 2022 at EUR 14 billion. Nevertheless Bankinter has a net creditor position with the ECB.

Capitalisation Combined Building Block (BB) Assessment: Good/Moderate

Bankinter reported a CET1 ratio of 11.90% at end-September 2022, down from 12.25% one year ago, and well above minimum regulatory requirements. DBRS Morningstar believes that Bankinter’s capital position is satisfactory, especially in the context of the Bank’s ability to generate capital internally through retained earnings and access to the capital markets. Capital cushions over minimum regulatory requirements stood at 337bps at end-September 2022 lower than other domestic peers. Bankinter has the second lowest P2R requirement under the SREP among the large Spanish banks, despite having a 9 bps add-on due to the compliance with supervisory expectations for prudential provisioning. In addition, DBRS Morningstar also notes that Bankinter posted a very solid result in the 2021 EBA-wide stress test.

Further details on the Scorecard Indicators and Building Block Assessments can be found at
https://www.dbrsmorningstar.com/research/405329

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

There were no Environmental or Social or Governance factors that had a significant or relevant effect on the credit analysis

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022)

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations https://www.dbrsmorningstar.com/research/398692/global-methodology-for-rating-banks-and-banking-organisations (June 23, 2022)
In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022) in its consideration of ESG factors and the DBRS Morningstar Criteria: Guarantees and Other Forms of Support
https://www.dbrsmorningstar.com/research/394683/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support (April 4, 2022)

The sources of information used for this rating include Morningstar Inc. and Company Documents, Bankinter - Annual Reports (2015-2021), Bankinter - Quarterly Reports (2015-Q3 2022), Bankinter - Presentations (2015-Q3 2022). DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/405328

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Pablo Manzano, CFA, Vice President - Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of European FIG - Global FIG
Initial Rating Date: November 15, 2012
Last Rating Date: November 16, 2021

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