Scope continues to see BBVA as one of the strongest banks in Spain, thanks to its highly diversified retail and commercial banking business model with a strong presence in Mexico, the US and Turkey.

A high degree of diversification has helped the BBVA group to deliver significant profits at the consolidated level despite the stressed operating environment in Spain and enabled it to generate capital organically. The bank has withstood the collapse of the Spanish real estate market and stressed funding markets when yields on domestic sovereign bonds spiked in 2011 and 2012.

Scope sees less positively BBVA’s exposure to Turkey due to the continued macroeconomic volatility. According to Scope, the impact have been manageable so far, and BBVA’s Turkish subsidiary Garanti has been able to cover rising loan provisions with pre-provision income. BBVA expects the cost of risk to remain below 300bps in 2019. Should Turkish asset quality deteriorate beyond current expectations it could represent a more material risk to BBVA’s credit profile. BBVA’s equity exposure to Garanti is relatively limited (EUR 4bn) but losing Turkey would detract from the group’s diversification profile and growth prospects.

With the domestic economic environment improving, the burden of Spanish legacy assets on the group’s earnings capacity has almost disappeared. The Spanish economic rebound should also have a positive impact on the sustainability of public debt. While the latter remains a concern to us, we do not automatically link BBVA’s rating to the credit standing of the Spanish sovereign.

Scope highlights that BBVA’s credit benefits from a solid regulatory and supervisory framework in Europe but that its non-EU subsidiaries are also subject to several different sets of rules and to host country supervisors.

Alongside the issuer rating at A+, the following ratings were affirmed, all with Stable Outlook

• Senior unsecured debt (preferred, non MREL-eligible) A+
   
• Senior unsecured debt (non preferred, MREL-eligible) A
   
• AT1 debt BB+
   
• Short-term debt S-1+

Scope also assigned a BB+/stable debt rating to BBVA’s EUR 1bn 5.875% AT1 notes issued in September 2018 (ES0813211002) and EUR 1bn 6.000% AT1 notes issued in March 2019 (ES0813211010) in line with previously rated AT1 bonds by BBVA. The bond’s principal loss absorption mechanism is equity conversion with a trigger of 5.125%, applicable both at consolidated and parent company level.

BBVA’s full issuer report is available to be downloaded at www.scoperatings.com.

Rating-change drivers

According to Scope, BBVA’s rating could be downgraded because of worsening financial fundamentals of its subsidiaries particularly Turkey and Mexico. The rating could be upgraded if BBVA’s digitalisation effort lead to a material strengthening of its market position in its core markets.

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodologies used for this rating(s) and/or rating outlook(s) (Bank Rating Methodology & Bank Capital Instruments Rating Methodology) are available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rating was not requested by the rated entity or its agents. The rated entity and/or its agents participated in the rating process. Scope had access to accounts and management and no access to other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Marco Troiano, Executive Director
Person responsible for approval of the rating: Dierk Brandenburg, Managing Director
The issuer ratings/outlooks were first released by Scope on 02.04.2014. The issuer ratings/outlooks were last updated on 02.02.2017. The short-term ratings/outlooks were first released by Scope on 22.05.2014. The short-term ratings/outlooks were last updated on 26.10.2017. The senior unsecured debt ratings/outlooks were first released by Scope on 02.04.2014. The senior unsecured debt ratings/outlooks were last updated on 25.07.2017. The non-preferred senior unsecured debt rating was first released by Scope on 25.07.2017.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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