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Kutxabank's Mortgage Covered Bond Program 'AA+' Ratings Affirmed Then Withdrawn At Issuer's Request


  • Following the transposition of the European Covered Bond Directive into Spanish legislation, we updated our analysis of Kutxabank's mortgage covered bond program.
  • The program's available credit enhancement is commensurate with the current ratings. We therefore affirmed our 'AA+' ratings on the covered bond program and related covered bond issuances.
  • We subsequently withdrew our 'AA+' ratings on Kutxabank's covered bond program and outstanding covered bond issuances at the issuer's request.
  • The outlook was stable at the time of withdrawal.

MADRID (S&P Global Ratings) Jan. 26, 2023--S&P Global Ratings today affirmed its 'AA+' ratings on Kutxabank S.A.'s mortgage covered bond program and related issuances. We subsequently withdrew the ratings on the program and outstanding covered bond issuances at the issuer's request.

The Spanish Royal Decree Law from November 2021, partially amended in June 2022, aligned the Spanish covered bond framework with the EU's Covered Bond Directive. Although the Royal Decree Law enhances transparency and regulatory oversight, it lowers the levels of minimum required overcollateralization in Spanish covered bond programs (see "Spanish Covered Bonds: Harmonization Achieved Through Royal Decree Law," published on July 13, 2022).

We analyzed the selected portfolio, which is included in the cover pool register, and believe the overcollateralization level is commensurate with a 'AA+' rating.

Based on our credit analysis using the specific adjustments defined for Spain under our global residential loans criteria (see "Related Criteria"), we estimate lower credit losses compared with our previous analysis. This is driven by the cover pool's improved credit quality.

Based on our cash flow analysis, we conclude that the available credit enhancement in the program continues to support four potential notches of collateral-based uplift above the jurisdiction-supported rating level of 'a'. No deductions were made for uncommitted overcollateralization or the lack of six months of liquidity. This leads to a maximum achievable 'AA+' covered bond rating according to our covered bonds criteria.

The ratings on the covered bonds are not constrained by counterparty, legal, or operational risks, in our view.

Under our sovereign risk criteria, the mortgage covered bonds can be rated up to four notches above the sovereign rating if there is sufficient overcollateralization to withstand a sovereign default. As the covered bond program meets these conditions, and considering the current foreign currency rating on Spain (A/Stable/A-1; unsolicited), the maximum potential rating the covered bonds can achieve is 'AA+'.

As a result of the above, we affirmed our 'AA+' ratings on Kutxabank's mortgage covered bond program and related issuances.

We subsequently withdrew our 'AA+' ratings on Kutxabank's covered bond program and outstanding covered bond issuances at the issuer's request. The outlook was stable.

Related Criteria

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Primary Credit Analyst:Natalie Swiderek, Madrid + 34 91 788 7223;
Secondary Contact:Ana Galdo, Madrid + 34 91 389 6947;

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