Rating action

Scope Ratings GmbH (Scope) has today withdrawn the AAA/Stable rating assigned to the cédulas hipotecarias (Spanish mortgage-covered bonds) issued by Spain’s Bankia SA.

Rating rationale

Prior to the withdrawal, Scope reviewed the credit performance of Bankia’s covered bonds based on the December 2020 cover pool reporting^1,2. Key rating drivers have remained broadly unchanged since Scope’s last review and continue to support the AAA rating with a Stable Outlook.

Issuer rating (positive). The BBB+ issuer rating on Bankia SA³ provided a solid basis for the covered bond rating. The issuer rating is under review for a possible upgrade following the announcement to merge with Caixabank. The merged entity will likely have a stronger credit profile than Bankia as Caixabank is a larger and more diversified bank with solid financial fundamentals. However, a positive issuer rating change would not impact the covered bond rating as it already was at the highest level.

Cover pool support (positive). Strong cover pool support was the primary rating driver and added at least seven notches of credit uplift, reflecting i) the generous overcollateralisation of 175.6% as of end-2020 that shielded the covered bonds from market and credit risks; and ii) the granular, predominantly residential cover pool with a moderate loan-to-value ratio and improving asset quality.

Fundamental credit support (positive). The six-notch fundamental credit support uplift reflects the strength of the Spanish legal covered bond framework, the benefits of the resolution regime, and the systemic importance of covered bonds in Spain.

The rating has been withdrawn for business reasons.

Rating References
1. Bankia Mortgage public covered bond reporting 
2. Cover pool reporting (Confidential)
3. Bankia SA Issuer rating 

Stress testing & cash flow analysis
No stress testing was performed. The cover pool-supported Credit Rating uplift is based on a cash flow analysis using Scope Ratings’ covered bond model (CobEL version 1.0). The model applies Credit Rating distance-dependent stresses to scheduled cash flows to simulate the impact of increasing credit and market risks. The model outcome is the expected loss for a given level of overcollateralisation as well as the impact of stressed asset sales or variables such as changing prepayment speeds or servicing costs.

Methodology
The methodologies used for these Credit Ratings and Outlooks (Covered Bond Rating Methodology, 22 July 2020; General Structured Finance Rating Methodology, 14 December 2020; Methodology for Counterparty Risk in Structured Finance, 8 July 2020), are available on https://www.scoperatings.com/#!methodology/list.
The model used for these Credit Ratings and Outlooks is CobEL Version 1.0, available in Scope Ratings’ list of models, published under https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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 Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public dofmain, the Rated Entity, third parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks were issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks were UK-endorsed.
Lead analyst: Reber Acar, Senior Analyst
Person responsible for approval of the Credit Rating: Karlo Fuchs, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 8 July 2016. The Credit Ratings/Outlooks were last updated on 10 July 2020.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions 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. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.