Rating rational

Scope’s ratings of AAA/Stable for the EUR 32.3bn Cedulas Hipotecarias (Spanish mortgage covered bonds or CHs) issued by Bankia SA (Bankia) reflect the agency’s credit view of the issuing bank, further enhanced by the strong credit support provided by the cover pool analysis. Cash flow mismatch risk is significant but generously buffered by the 101% of overcollateralisation provided by the entire mortgage book of the issuer. Overcollateralisation allows to support a maximum credit differentiation of up to nine notches above the issuer’s credit quality as assessed by Scope after applying severe credit and market value stresses to the improving but still-weak collateral.

The benefits from the Spanish legal covered bond framework and Scope’s credit-positive view on the resolution regime, combined with the CHs and issuer’s systemic importance, translate into a six-notch fundamental credit differentiation. This fundamental uplift effectively protects the covered bond rating from credit negatives on the cover pool composition and covered bond structure.

Scope views Bankia as one of the best positioned domestically oriented franchises remaining in Spain, having been significantly restructured over the past few years. The current interest rate environment, combined with Bankia’s specificities, results in a challenging outlook for revenues and profits. However, asset quality in the mortgage book should continue to improve, lowering the need for provisions going forward. Scope’s credit view of the issuer does not include state support.

Outlook: Stable

Scope has assigned a Stable Outlook to Bankia’s CHs which reflects: i) the availability of high overcollateralisation levels which provides a buffer against adverse changes in the mortgage book’s asset quality and cash flow structure; ii) Scope’s view on how likely changes in the cover pool’s risk structure would affect the rating; and iii) the stable credit view on the issuer. A one-notch change of the issuer’s creditworthiness is unlikely to affect the covered bond rating.

The covered bond rating could be downgraded if Scope’s view on the issuer’s credit quality deteriorates by more than one notch, or if the issuer significantly reduces the size of its mortgage book or issues significant amounts of CHs eroding available overcollateralisation below the rating supporting overcollateralisation.

NOTES
Scope today has published a rating report which provides the rationale for the rating of Bankia’s CHs and the assessment of individual credit factors. The report also includes the regulatory disclosures. The rating report is freely available on www.scoperatings.com under the following link: Rating Report.