Fitch Ratings has affirmed
The Outlook on the Long-Term IDR is Stable.
A full list of rating actions is detailed below.
Key Rating Drivers
Strengthening Franchise: Unicaja's ratings reflect its sound franchise as the fifth-largest Spanish bank following its merger with
Less Diversified Business Model: Unicaja is less diversified than higher-rated peers, although off-balance-sheet funds have seen a material increase. We expect further revenue diversification in the medium term as the bank grows its assets-under-management and insurance businesses, leveraging on its cross-selling capabilities on new mortgage lending.
Low-Risk Loan Book: Unicaja's risk profile benefits from the proportion of low-risk residential mortgage loans (58% of gross loans at
Weak Asset Quality: Unicaja's problem-asset ratio (which includes impaired loans and net foreclosed assets) was high at 4.7% at
Improving Profitability: Unicaja's profitability is currently modest but we expect it to improve in the medium term on higher interest rates, cost synergies from its merger with
Satisfactory Capital Buffers: Unicaja maintains satisfactory capitalisation (fully-loaded common equity Tier 1 (CET1) at 12.6% at
Stable Funding and Liquidity: Funding benefits from a large, stable and granular customer deposit base, which provides funding considerably in excess of loans. Other funding is largely secured in the form of covered bonds,
Unicaja's 'F3' Short-Term IDR maps to a 'BBB-' Long-Term IDR on Fitch's rating scale.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
They bank's ratings have sufficient headroom to absorb a small deterioration in asset quality as expected in the current economic environment, in the absence of additional sales and disposals or if earnings and profitability does not increase as we forecast. However, the ratings could be downgraded if the fully-loaded CET1 ratio falls sustainably below Unicaja's guidance of at least 12.5% without a credible plan to restore it in the short term, or if capital encumbrance to unreserved problem assets increases substantially.
Rating pressure could also result from weakening structural profitability and the problem-asset ratio increasing towards high single digits due to higher-than-expected asset-quality pressures.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade would require a continued improvement of our assessment of asset-quality and earnings- and-profitability scores. This would result from a meaningful and sustained improvement of operating profitability (sustainably above 2% of risk-weighted assets (RWAs)), improvement in asset quality (with a problem-asset ratio comfortably and sustainably below 4%) while maintaining a fully-loaded CET1 above 12.5% at all times.
An upgrade would also require a conservative approach to risk taking being maintained. An improvement of our assessment of the operating environment could also be positive for ratings.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SENIOR PREFERRED DEBT (SP)
Unicaja's SP debt is rated in line with the bank's Long-Term IDR, reflecting our expectation that Unicaja will use SP debt to meet its resolution buffer requirements, and that the combined buffer of additional Tier 1, Tier 2 and senior non-preferred (SNP) debt is unlikely to exceed 10% of the bank's RWAs.
SUBORDINATED DEBT
Subordinated Tier 2 debt is rated two notches below the VR for loss severity, reflecting poor recoveries arising from its subordinated status.
Additional Tier 1 (AT1) debt is rated four notches below Unicaja 's VR, which is the baseline notching for this type of debt under Fitch's criteria. This notching reflects poor recoveries, due to the notes' deep subordination (two notches) as well as incremental non-performance risk relative to the VR (two notches), given fully discretionary coupon payments and a write-down trigger.
GOVERNMENT SUPPORT RATING
Unicaja's Government Support Rating of 'no support' reflects Fitch's belief that senior creditors can no longer rely on receiving full extraordinary support from the sovereign if Unicaja becomes non-viable.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
SENIOR PREFERRED DEBT
The SP debt rating is primarily sensitive to a change in the bank's Long-Term IDR, which is itself sensitive to the bank's VR. The SP rating is also sensitive to a change in the bank's strategy to meet its resolution buffer requirements. Although currently not expected, the rating could be upgraded by one notch if the size of the combined buffer of junior and SNP debt is expected to sustainably exceed 10% of RWAs or if resolution requirements are expected to be met only with SNP debt and more junior instruments.
SUBORDINATED DEBT
Subordinated debt ratings are primarily sensitive to a change in Unicaja's VR. The ratings are also sensitive to a change in notching should Fitch change its assessment of loss severity or relative non-performance risk.
The AT1 notes' rating is primarily sensitive to changes in Unicaja's VR. The rating is also sensitive to adverse changes in its notching from Unicaja's VR, which could arise if Fitch changes its assessment of the probability of the notes' non-performance relative to the risk captured in the VR. This may reflect a change in capital management in the group or an unexpected shift in regulatory capital requirements, for example.
GOVERNMENT SUPPORT RATING
An upgrade of the GSR would be contingent on a positive change in the sovereign's propensity to support its banks. Although not impossible, this is highly unlikely, in Fitch's view.
VR ADJUSTMENTS
The operating-environment score of 'bbb+' is below the 'a' category implied score due to the following adjustment reason: economic performance (negative)
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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