BBVA’s senior debt and long-term issuer ratings under review for upgrade by Moody’s

Investing.com -- Moody’s Ratings has placed the A3 senior unsecured debt ratings and long-term issuer ratings of Banco Bilbao (NYSE:BBVA) Vizcaya Argentaria, S.A.(BBVA (BME:BBVA)) under review for a potential upgrade. The review also includes the bank’s Baseline Credit Assessment (BCA) and Adjusted BCA of baa2, the junior senior unsecured debt ratings of Baa2 and the subordinated debt ratings of Baa2. Meanwhile, the A2 long-term deposit ratings have been placed on review with uncertain direction and the Prime-1 short-term deposit ratings are under review for a possible downgrade. The Counterparty Risk Ratings (CRR) and Counterparty Risk Assessments (CRA) of BBVA have been affirmed at A2/P-1 and A3(cr)/P-2(cr) respectively.

The review for the upgrade of BBVA’s BCA was triggered by the recent improvement in the bank’s credit profile, especially in terms of profitability. The review will assess the sustainability of the bank’s asset quality and profitability, mainly against challenges from its operations in Mexico, which accounts for about 50% of the group’s net profits, and the ongoing margin compression in Spain. The review will also consider the potential implications of BBVA’s ongoing acquisition offer for Spain’s competitor Banco de Sabadell, S.A. (Banco Sabadell), if the deal is completed.

BBVA’s profitability has significantly strengthened over the last few years, supported by the more favorable interest rate environment in Spain and the good performance of some of its international operations, particularly in Mexico. The bank’s asset quality has also improved in recent years primarily due to the favorable performance of its Turkish and Spanish operations, with the group’s problem loan ratio reaching multi-year lows at 3.35% as of the end of 2024. However, some deterioration is expected from the record-high profitability levels reached in 2024, as the interest rate cycle in Europe started shifting downwards in 2024, leading to some margin compression. Additionally, lower government spending and uncertainties arising from the US trade and tariff policies towards Mexico are likely to impact BBVA’s subsidiary operations.

The review for upgrade of BBVA’s A3 senior unsecured debt ratings reflects the review for upgrade of the baa2 BCA, the unchanged outcome of Moody’s Advanced Loss Given Failure (LGF) analysis which results in two notches of uplift, and the unchanged assumption of moderate government support, which results in no further uplift, because BBVA’s ratings, before government support, are already higher than Spain’s sovereign rating (Baa1, positive).

The direction uncertain review of BBVA’s A2 long-term deposit ratings reflects both upward and downward rating pressure on deposits. There is upward pressure stemming from the strengthening of the bank’s creditworthiness and maintaining the current low loss given failure for this liability class, reflected in three notches of uplift. There is also negative pressure on the long-term deposit ratings, which stems from the potential rise in the severity of losses for this type of liability and therefore lower notching under Moody’s Advanced LGF analysis.

BBVA’s BCA could be upgraded if the recent strengthening of the bank’s credit profile is sustained, resilient to anticipated headwinds, and is not materially weakened by the completion of the acquisition offer by Banco Sabadell, should it succeed. The upgrade of BBVA’s long-term deposit ratings would require stability of the current low loss given failure for this liability class and the upgrade of Spain’s sovereign rating. BBVA’s long-term senior unsecured debt ratings could be upgraded if the bank’s BCA were to be upgraded or as a result of higher uplift resulting from Moody’s loss given failure analysis.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.