Bankia’s ratings acknowledge the group’s domestically oriented retail and commercial banking business model, with a focus on low-risk mortgages. The franchise was strengthened through the merger with BMN in 2017.

In 2020, the operating environment has deteriorated materially, and Scope expects the Spanish economy to contract by 12.5% in 2020 before rebounding next year. Scope expects the recession to drive an increase in Spanish banks’ cost of risk, which was at cyclical lows in 2019. When it comes to the derisking of legacy non-performing assets, Bankia looks set to overdeliver on its strategic targets, although the Covid-19 recession will lead to an increase in non-performing loan formation that will have to be dealt with over time.

Following the recent communication that Bankia has entered merger discussions with Caixabank, Scope notes that a combination between the two entities would create an unrivalled market leader in several segments, from bancassurance to wealth management.

A merger deal with another domestic institution such as Caixabank could also catalyse further cost cutting and support pre-provision profitability, which remains the main shortcoming in an otherwise impressive turnaround for an institution that has undergone a profound transformation over the past decade.

The Outlook is Stable, reflecting Scope’s expectation that Covid-19 impacts will be manageable for the bank.

This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

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