Fitch upgrades Santander’s rating to ’A’ with stable outlook

Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Rating (IDR) and Viability Rating (VR) of Banco Santander (BME:SAN), S.A. (Santander) from ’A-’ to ’A’ on Tuesday, February 11, 2025. The outlook on the IDR is stable.

The upgrade reflects Fitch’s view that Santander’s performance, characterized by strong resilience and broad geographic diversification, supports a rating one notch above the Spanish sovereign Long-Term IDR of ’A-’. The bank’s performance is further bolstered by its good loss absorption capacity, resilient earnings, and limited asset-quality variability across different cycles.

The rating agency also expects Santander to operate with capital ratios above historical levels. Key drivers behind Santander’s ratings include its well-balanced geographically diversified retail and commercial banking operations, strong franchises in several key markets, and a leading consumer finance business in Europe.

Santander’s funding benefits from its growing deposit base and access to diverse wholesale funding sources. The bank’s business model focuses on retail and commercial banking, complemented by growing Corporate and Investment Banking (CIB) business, consumer finance, wealth management, insurance, and payment services.

Santander’s risk profile has improved due to broad enhancements in key operating environments, notably in Spain. The bank’s risk management strategies, including tightening its underwriting standards in more vulnerable geographies according to macroeconomic changes, support asset-quality resilience.

Fitch expects Santander’s impaired loans ratio to remain around 3.5% in 2025 and 2026, aided by loan growth and falling interest rates in key markets. The bank’s operating profit is expected to stay comfortably above 3% of risk-weighted assets (RWAs) in 2025-2026.

Fitch anticipates Santander to operate with a common equity Tier 1 (CET1) ratio of about 13% for 2025 and 2026, in line with management’s guidance. The bank’s global retail deposit franchise supports its stable funding and liquidity.

Negative rating pressure could emerge if Santander fails to maintain a CET1 ratio of around 13%, or if its operating profits/RWAs falls below 3%. The ratings are also sensitive to a downgrade of Spain’s sovereign rating.

An upgrade of Santander is unlikely and would be contingent on an upgrade of Spain’s rating. An upgrade would also require Santander maintaining a CET1 ratio materially above 13%, while preserving an operating profit/RWAs well above 3%, without significantly altering the group’s risk profile, and achieving stronger asset-quality metrics.

Santander’s ’F1’ Short-Term IDR has been upgraded by one notch following the upgrade of the bank’s Long-Term IDR. Santander’s long-term senior preferred debt, deposit ratings, and Derivative Counterparty Rating (DCR), have been upgraded to ’A+’ from ’A’.

The rating of subordinated Tier 2 debt has been upgraded to ’BBB+’ from ’BBB’, and Santander’s legacy preferred shares have been upgraded to ’BB+’ from ’BB’. Santander’s Government Support Rating (GSR) of ’no support’ reflects Fitch’s view that although external extraordinary sovereign support is possible, it cannot be relied on.

Santander’s DCR, senior debt and deposit ratings are primarily sensitive to changes in Santander’s IDRs. Santander’s subordinated debt and legacy preferred shares’ ratings are primarily sensitive to a change in Santander’s VR.

An upgrade of the GSR would be contingent on a positive change in the sovereign’s propensity to support the bank. In Fitch’s view, this is highly unlikely. The ESG credit relevance score is ’3’, which means ESG issues are credit-neutral or have only a minimal credit impact on the entity.

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