Morningstar DBRS upgraded BBVA’s long-term issuer rating to AA (low) from A (high) on 20 October. It made the same one-notch change to long-term deposits and senior preferred debt. Senior non-preferred debt rose to A (high) from A, while subordinated debt moved to A from A (low). The agency changed all trends to stable from positive.
The agency said the rating reflects resilient profitability, leading franchises in Spain and Mexico and a diversified business model. It also cited cost control, capital generation and liquidity. BBVA reported €6.05bn of attributable profit for the first half, 11.1% higher than a year earlier. The group had €965bn of assets at June and serves about 80m customers, according to Morningstar DBRS.
PROFITABILITY AND CAPITAL
Morningstar DBRS said return on equity reached 20.8% in the first half. It expects revenue growth and controlled costs to support high profitability over the medium term. The agency also noted BBVA’s diversification across business lines and markets, while identifying Mexico as a substantial earnings contributor.
Asset quality remained sound, with a non-performing loan ratio of 2.6% at June. Morningstar DBRS said BBVA’s capital position was solid and supported by strong internal generation. It reported a liquidity coverage ratio of 145% and a net stable funding ratio of 125%.
RATING SENSITIVITIES AND NEXT TEST
Morningstar DBRS said further diversification and stronger franchise positions outside the group’s core markets could support upward pressure, although Spain’s sovereign rating constrains the bank. A sustained fall in profitability or capital, or a material deterioration in asset quality, could exert downward pressure.
The higher rating may support BBVA’s access to wholesale funding, although pricing will still depend on market conditions and instrument structure. The next scheduled checkpoint is BBVA’s third-quarter results on 29 October at 09:30 Madrid time. Those figures will show whether profitability, asset quality and capital remain consistent with the assumptions underlying the action.