Fitch Affirms Instituto de Credito Oficial at 'BBB+'; Outlook Stable
KEY RATING DRIVERS
The IDRs, senior debt ratings and SRF are equalised with those of ICO's 100% shareholder, the Spanish government (BBB+/Stable/F2), reflecting our view of a high probability of support from the Spanish sovereign, if needed, given the institution's special policy bank status and role in supporting and fostering economic activities in Spain.
Our assessment is also based on Spain providing an explicit, irrevocable, unconditional and direct guarantee for debts and obligations incurred by ICO when raising funds. Fitch therefore believes that the government's propensity to provide support to ICO, in case of need, is strong and its ability to support is underlined in Spain's sovereign rating.
State support for ICO is unaffected by the implementation of the EU's Bank Recovery and Resolution Directive (BRRD) or the Single Resolution Mechanism (SRM) as ICO is explicitly excluded under BRRD from resolution and restructuring measures.
ICO's lending is driven by the Spanish government's policies. ICO provides medium- and longer-term lending to the private and public sector to promote economic and social development in Spain. The Spanish government appoints ICO's CEO, sets the institution's annual debt limits and exercises control over its operations.
ICO has reduced its lending volumes and overall balance-sheet size in recent years, in line with its counter-cyclical role within the Spanish economy. Despite this, the entity continues to contribute to the recovery of the Spanish economy by providing specialised services and new product lines to SMEs. In Fitch's view ICO is of high strategic importance to the state and no other bank can currently replace ICO's role as the state's financial arm.
Under Spanish law, the government is committed to maintaining ICO's regulatory Tier 1 ratio above 9.5%. At end-September 2015, the ratio was considerably higher at 26.9%, reflecting the government's commitment to keep the bank adequately capitalised by providing regular capital injections, as shown by EUR350m capital increases in 2014 and 2015 and a budgeted EUR175m increase in 2016.
The Stable Outlook is in line with that of Spain's Long-term IDR.
Fitch does not assign a Viability Rating to ICO as its business model is entirely dependent on the support of the Spanish state.
ICO's IDRs, Support Rating, SRF, senior debt ratings and Outlook are sensitive to changes in the sovereign rating. ICO's ratings are also sensitive to changes in the bank's strategic importance to the government, which Fitch currently does not expect.
The rating actions are as follows:
Long-term IDR affirmed at 'BBB+'; Outlook Stable
Short-term IDR affirmed at 'F2'
Support Rating affirmed at '2'
Support Rating Floor affirmed at 'BBB+'
Long-term programme and long-term senior debt affirmed at 'BBB+'
Short-term programme and commercial paper affirmed at 'F2'.