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Rating action

Scope Ratings GmbH (Scope) has today affirmed Instituto de Crédito Oficial’s (ICO) long-term issuer and senior unsecured debt ratings in both local and foreign currency at A, with Stable Outlooks. The agency also affirmed a short-term issuer rating of S-1 in both currencies, with Stable Outlooks.

The A/Stable ratings for ICO reflect several key factors:

• Equalisation factor: ICO’s ratings are equalised with the Kingdom of Spain’s A/Stable rating, reflecting the explicit, irrevocable, unconditional, and direct guarantee provided by the State on all of ICO’s liabilities.
   
• Strong integration with the public sponsor: ICO maintains a high level of integration with the Kingdom of Spain, underpinned by its public legal status, exclusive public ownership, provision of essential public services, and significant financial interdependencies with the State.
   
• Robust standalone fundamentals: The A rating also recognises ICO’s strong standalone fundamentals, which include robust capitalisation, sustained profitability, and solid asset quality. Approximately one-third of ICO’s loan portfolio consists of intermediary loans to private banks, which in turn extend funds to private sector borrowers. This structure, along with prudent risk management and a broadly diversified loan portfolio across sectors, results in very low non-performing loans. Furthermore, ICO’s robust access to capital markets—bolstered by state guarantees—ensures ample liquidity buffers and sustained funding across economic cycles.

Rating rationale

Equalisation factor: ICO’s issuer rating is equalised with the Kingdom of Spain’s A/Stable rating, reflecting the explicit, irrevocable, unconditional, and direct guarantee provided by the State on all of ICO’s liabilities. This guarantee is clearly stipulated in ICO’s bylaws, reinforcing the strong legal and financial backing from the Spanish government.

Robust integration with the Kingdom of Spain, given special public legal status, full public ownership, and crucial role in implementing government economic policies. As a public business entity (Entidad Pública Empresarial, EPE), ICO cannot be declared insolvent, making it exempt from the Banking Recovery and Resolution Directive (BRRD), which applies to commercial banks. This legal structure enables ICO to hold its own legal status, manage its assets and treasury autonomously, and effectively fulfil its policy-driven mandate. Additionally, ICO operates under ministerial supervision and is fully owned by the Spanish State, reinforcing its position as a key financial arm of the government. This institutional framework ensures that ICO remains a reliable and stable financing instrument for national economic development.

Legally classified as a credit institution, ICO is subject to Basel prudential regulations for banks and is supervised by the Bank of Spain, ensuring compliance with regulatory standards and financial stability requirements. As Spain’s national promotional bank, ICO plays a pivotal role in fostering economic growth and implementing government policies, with a mission focused on supporting sustainable development and financing projects with social, environmental, and cultural significance. Additionally, ICO acts as the state’s financial agent, managing strategic programmes, including guarantee lines during the pandemic and development cooperation funds, further reinforcing its crucial role in Spain’s financial and economic landscape. This broad policy mandate, coupled with strong government oversight, underscores ICO’s importance as a key institution in Spain’s economic and financial strategy.

ICO’s strategic position as Spain’s development bank is reinforced by its strong capital base, diversified lending approach, and active capital market presence. ICO’s business model, driven by its public policy mandate, positions it as a long-term, countercyclical lender and a key player in state support measures. Its deployment of Next Generation EU funds, combined with its commitment to sustainability-focused financing, underscores its importance to Spain’s long-term economic growth and financial stability.

Following record lending of over EUR 90bn in 2020 due to Covid-19 support programmes, lending has since normalised, reaching EUR 7.3bn in 2024 as crisis-driven support declined. Despite this moderation, ICO remains central to Spain’s economic policy, with future lending expected to focus on innovation, sustainability, and internationalisation.

ICO maintains stable but moderate profitability, with a return on assets of 0.93% in 2024. Its CET1 ratio of 22.99% significantly exceeds regulatory requirements, highlighting its strong capital base and financial resilience. Additionally, a prudent dividend policy prioritises capital retention, ensuring that ICO remains well-positioned to fulfil its long-term policy objectives.

ICO’s ability to provide lending facilities not only via direct funding but also using second-floor facilities is a key factor supporting its robust asset quality. Its loan portfolio is well-diversified, with a balance between domestic direct lending and second-floor facilities, the latter representing approximately one-third of its portfolio. This structure supports both direct financing and broader credit access through financial intermediaries. The loan portfolio is well-diversified across key economic sectors, aligning with Spain’s economic transformation and sustainability priorities. Furthermore, 24% of ICO’s loan book in 2024 is internationally allocated, reflecting its commitment to supporting Spanish businesses abroad and enhancing global financial integration. Asset quality remains robust, with a non-performing loan (NPL) ratio of 2.5% and a provision coverage ratio of 142% in 2024, ensuring strong risk protection.

ICO continues to play a key role in debt capital markets, where social and green bonds are central to its funding strategy. Debt issuance limits are aligned with the Spanish state’s annual budget, and the state can provide equity contributions if required. To support its growing financing activity, funding needs for 2024 were revised upward to EUR 8bn, with an additional EUR 2.9bn pre-funded for 2025. By end-January 2025, EUR 2.1bn had already been raised under the EUR 5bn 2025 funding programme.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the coming 12 to 18 months.

Upside scenarios for the ratings and Outlooks are (individually or collectively):

1. The Kingdom of Spain’s ratings and/or Outlooks were upgraded.

Downside scenarios for the rating and Outlooks are (individually or collectively):

1. The Kingdom of Spain’s ratings/Outlooks were downgraded.
    
2. A removal of the guarantee by the Kingdom of Spain or legal changes leading to a significantly lower integration with the Kingdom of Spain, resulting in weaker credit support from the Spanish sovereign.

Qualitative Scorecards (QS1) and Equalisation factor

Scope applies a top-down approach (QS1) in assessing the creditworthiness of ICO, which takes the public sponsor’s rating (Kingdom of Spain: A/Stable) as the starting point.

The adoption of the top-down approach (QS1) reflects the strong integration between ICO and its public sponsor, the Kingdom of Spain, resulting from: i) a ‘high’ integration assessment for legal status, ii) ‘high’ integration assessment for ICO’s purpose and activities; iii) a ‘high’ integration assessment regarding its shareholder structure; and iv) a ‘high’ integration assessment on financial interdependencies.

Scope then applies the equalisation factor. This is because the Kingdom of Spain provides an explicit, irrevocable, unconditional and direct guarantee on ICO’s liabilities.

The assessments under QS1 and the equalisation factor result in an indicative rating of ‘A’ for ICO. The supplementary analysis of standalone fundamentals has not led to any adjustment to the indicative rating, resulting in a final rating of A.

The results were discussed and confirmed by a rating committee.

Environment, social and governance (ESG) factors

Scope considers the following ESG factors in the rating analysis.

Scope's A rating for the Kingdom of Spain, ICO’s public sponsor, includes an appraisal of ESG factors. Governance factors are relevant to ICO's rating and are included in the assessment of the integration with the Kingdom of Spain and in the assessment of ICO’s standalone profile. These factors are supported by a robust corporate governance structure, which ensures that ICO effectively carries out its responsibilities as the national promotional bank, contributing to public interests.

ICO has made sustainability and ESG considerations central to its corporate strategy, aiming for 40% of new operations to meet sustainability criteria, a target it surpassed in 2023 with 46% of approved financing classified as sustainable. Since 2015, ICO has issued EUR 8.55bn in social and green bonds, including a EUR 500m social bond in June 2024. The proceeds from these bonds are focused on supporting SMEs in disadvantaged regions and funding projects in socioeconomic advancement, social housing, and infrastructure development, reinforcing ICO’s role in promoting sustainable growth in Spain.

Rating committee
The main points discussed during the rating committee were: i) ICO’s integration with the Kingdom of Spain, ii) latest business developments, financial and funding developments; and iii) peer comparison.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Government Related Entities Rating Methodology, 10 December 2024), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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 domain.
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/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

 Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Jakob Suwalski, Senior Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 27 June 2018. The Credit Ratings/Outlooks were last updated on 20 September 2024. 

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.  

Conditions of use / exclusion of liability
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