Fitch Ratings on April 7 upgraded Kutxabank SA's long-term issuer default rating to BBB+ from BBB, with the outlook revised to stable from positive.
The agency also upgraded the lender's short-term issuer default rating to F2 from F3 and its viability rating to "bbb+" from "bbb," while affirming its support rating and support rating floor at 5 and No Floor, respectively.
The upgrade reflects the bank's robust loss-absorption capacity, as well as the reduction of its problem assets and equity investments, which Fitch expects to be reduced further.
The agency also cited Kutxabank's satisfactory capital buffers over minimum regulatory requirements. The lender's fully loaded common equity Tier 1 and leverage ratios stood at 14.8% and 8%, respectively, at the end of 2016, above many of its peers.
Its nonperforming loan ratio, while still high by international standards, improved to 6.8% at 2016-end from 8.7% at the end of 2015, a level that compares well with domestic peers. The improvement in its NPL level was driven by higher recoveries and write-offs, which offset lower NPL entries, Fitch noted.
The bank's fairly modest earnings are expected to remain under pressure in 2017 due to low interest rates and muted loan volumes. Kutxabank's solid insurance and asset management business, however, provides it with a certain amount of earnings diversification and stability, while internal capital generation is expected to benefit from lower provisioning needs as asset quality gradually improves, the agency added.