The rating actions reflect the integration risks facing the combined group and the need to materialise synergies. The group will continue to have high exposure to the construction/real estate sectors and equity investments.
Fitch Ratings has downgraded Banca Civica Group's (BCG) Long-term Issuer Default Rating (IDR) to 'BBB+' from 'A-' and Individual Rating to 'C' from 'B/C' and removed them from Rating Watch Negative (RWN). The Outlook on the IDR is Stable. At the same time, Fitch has upgraded Monte de Piedad y Caja de Ahorros San Fernando de Guadalajara, Huelva, Jerez y Sevilla's (Cajasol) Long-term IDR to 'BBB+' from 'BBB' and Short-term IDR to 'F2' from 'F3' and removed them from Rating Watch Positive (RWP). The Outlook on the Long-term IDR is Stable.
BCG's ratings reflect the analysis of the consolidated banking group. Currently there is a mutual support mechanism between Caja de Ahorros y Monte de Piedad de Navarra, Caja General de Canarias, Caja de Ahorros Municipal de Burgos, Cajasol and Banca Civica SA (BC). Consequently, Cajasol's Individual Rating, Support Rating and Support Rating Floor have been withdrawn. As the cajas plan to transfer all of their assets and liabilities to BC by end-June 2011, Fitch expects to withdraw BCG's and the cajas' ratings at that point.
The rating actions reflect the integration risks facing the combined group and the need to materialise synergies. The group will continue to have high exposure to the construction/real estate sectors and equity investments. Nonetheless, the combined group will also be well capitalised, given the need to increase core capital regulatory ratios to 10% by Q311, as required by Spain's government. It will also be geographically diversified, with sound regional franchises, fragmented loans, innovative management, ample loan impairment reserves and adequate liquidity.
Although the Outlook on the Long-Term IDR is Stable, BCG's ratings could be downgraded if there is a significant deterioration in asset quality or if the integration is not managed successfully, with a longer restructuring process than anticipated. Ultimately, these factors will put further pressure on the already tight profitability. A further rebalancing of its funding towards customer deposits would support the group's credit profile.
The group has low single-name risk concentration, which is driven by geographical diversification and a large proportion of loans being to individuals (51%). However, construction and real estate lending accounted for a high, but declining, 21% of loans, of which 29% is in land. BC's impaired non-performing loans (NPL)/loans ratio was 5.7% at end-2010 (8.2% including foreclosed assets). Positively, NPL coverage was ample at 110% of NPLs thanks to the front-loading credit losses of about EUR2.1bn. Foreclosed assets are 28% covered.
BC's loan/deposit ratio was 132% at end-2010, reflecting some wholesale funding reliance. Maturities are diversified but there is some maturity concentration in 2011 and 2012 (EUR5.7bn). However, BC has EUR5.5bn of available liquid securities at end-2010, which offsets refinancing risk.
The valuation of assets and liabilities at fair value brought about a EUR1.9bn write-down of reserves, which was partly compensated by EUR977m of funds from the Spanish government Fund for Orderly Bank Restructuring (FROB). BC expects to increase capital by EUR1bn through an IPO of the bank. This will also lead to increased market discipline and help it comply with more stringent core capital requirements and achieve a regulatory core capital ratio of above 10%. Should BC not succeed in this plan, FROB will inject capital by March 2012.
BC was the 10th-largest Spanish banking group by assets at end-2010, with a market share of 3% of loans.
