Fitch Upgrades Sabadell’s Credit Rating One Step Amid BBVA Takeover Bid | Companies

Fitch upgraded the credit rating of Banco Sabadell’s long-term debt by one notch to an approved rating, or BBB in the jargon, an improvement that came after BBVA filed a takeover bid for the entity with the eventual intention of merging it.

Fitch, in a statement published this Wednesday, explains that it is upgrading Sabadell’s rating due to structural improvements in its profitability and, in turn, its capitalization, which have benefited from the company’s restructuring plans, higher interest rates and better TSB performance. its subsidiary in the UK. He also believes the credit losses Sabadell may have to accept will continue to be “contained” and keeps his view of the company’s rating stable, so the note should be maintained for the near term.

In his opinion, the agency does not take into account the offer made by BBVA to Sabadell shareholders, as it believes that it does not have immediate material implications for the credit rating due to the uncertainty surrounding the success of the operation. However, Fitch believes that this, coupled with the potentially long period of such a transaction, could impact the execution of Banco Sabadell’s strategy. In the event that a merger with BBVA appears likely, the agency will assess the potential impact on the rating and possible implications for Sabadell’s credit profile.

In its report, Fitch praises the strength of Sabadell’s presence in Spain, particularly its SME business, which is complemented by the geographic diversification provided by TSB, its UK subsidiary, which has improved its performance. Additionally, the rating agency considers the bank’s risk profile to be “moderate” as Sabadell has a diversified portfolio of loans and securities invested primarily in Spanish government debt.

Sabadell’s asset quality is broadly in line with that of its larger domestic competitors, with non-performing assets (including non-performing loans and net foreclosed assets) at 3.9% at year-end 2023. Fitch expects the ratio to remain largely stable in 2024 and begin to improve in 2025, supported by the strength of the Spanish economy and lower interest rates.

The agency also highlights Sabadell’s improving profitability and expects operating profit to increase to approximately 3% of risk-weighted assets (RWA) in 2024, up from 2.6% in 2023. Finally, Fitch recalls that Sabadell’s Common Equity Tier 1 (CET1) ratio was 13.3% at the end of the first quarter, below the average of its European peers but above regulatory requirements and supported by the bank’s improving internal capital generation capacity.

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