Rating of Banco Sabadell
Axesor Rating assigns to Banco Sabadell a rating A- with stable trend given the continuous improvement of the risk profile of the entity, along with the favorable macroeconomic conditions in Spain, which makes it foreseeable that credit metrics will continue its trend of improvement.
Madrid, 24 July 2019
Axesor Rating assigns Banco Sabadell an unsolicited rating of A- with stable trend. It is the fourth bank in Spain by volume of consolidated assets (225.7 billion euros at the end of March 2019). Its activity is focused on commercial banking, where it excels in the retail, SME and corporate business. It is geographically diversified, with a presence in the United Kingdom (through the subsidiary TSB Banking Group) and in Mexico. In Spain, where it concentrates its fundamental activity, it maintains a solid positioning. The reputational challenge faced in 2018 by its subsidiary TSB exposes the entity to possible penalties by the British financial authority, which Axesor Rating believes will be assumed if they materialize.
The high presence of more cyclical portfolios such as SME and corporate allow Sabadell to have returns in line with its national peers. Its management has a high degree of professionalization and has successfully undertaken organizational and risk management measures in the last financial year. The mobilization of unproductive assets has substantially improved their risk profile.
Spain's macroeconomic context, with growth above the European average, has been favourable to it, with a rise in banking business in line with economic conditions, although the uncertainty arising from Brexit could affect its activity in the UK Kingdom. Sabadell shows a strong capacity to generate resources with growth in volumes in the most profitable segments, which allowed it to compensate for the context pressure of low interest rates and the losses of TSB in 2018.
Axesor Rating expects the trend of volume growth and improved returns to continue, with market share increasing that will serve as a lever for growth.
The quality of its assets has improved through the sale of portfolios. Sabadell presents strong capital levels, above regulatory minimums. This is accompanied by a liquidity position based on a stable deposit base as the main source of financing. Short-term liquidity coverage is above the national and European average. Sabadell has a solid capacity to meet its obligations to third parties.
Analysis by Axesor Rating
"The Spanish banking sector is facing a downward profitability scenario because of high competition, regulatory pressures and the elongation of low rates at the European Central Bank's insistence on achieving its inflation target. Therefore, efficiencies and results generation strategies will be focused, among others, on cost savings," says Vicente Bustos Izquierdo, Head of Financial Institutions of Axesor Rating. "The main problem is the soil to which the financial costs have reached, which has highlighted the inability to follow the path of savings in terms of intermediation margin. This situation puts the focus on the efficiency of personnel costs as the main challenge of the entities to achieve their profitability objectives. In this vein, we see reasonable an eventual second round of mergers, mainly national, aimed at scale gains, mainly in those smaller entities with no market leadership position."