Abanca Corporacion Bancaria S.A

The stable outlook indicates that we expect Abanca's operating profitability and efficiency to gradually improve over the next 18-24 months as the bank focuses on extracting further value from its recent acquisitions and gradually rising interest rates. While some asset quality deterioration from the pandemic and indirect effects from the Ukraine-Russia conflict might yet emerge, these should be manageable, allowing credit provisions to remain contained below 30 basis points (bps). Capitalization should remain solid, providing some buffer for modest inorganic growth, although we do not incorporate any acquisitions in our forecast. We could lower the rating if Abanca engaged in additional acquisitions that weaken its capitalization below our 7% RAC threshold, increased its risk profile, or posed managerial challenges; or

...Abanca's Corporacion Bancaria S.A limited scale compared with larger domestic players and modest underlying profitability constrain its business competitiveness relative to higher-rated peers. Despite its sound franchise in its home market of Galicia, where it holds a 36% market share in loans, and management's demonstrated ability to integrate smaller entities over the past few years, high competition amid increased domestic concentration and the continued need to accelerate digital transformation will continue to pressure its efficiency and earnings capacity. The bank's risk profile improved meaningfully in recent years, and we anticipate that it will prove resilient to some credit quality deterioration. We expect some risks from the pandemic and war-related spillover effects, although these should be relatively manageable. Abanca's asset quality metrics improved in recent years thanks to its revamped risk practices and accelerated sales, now comparing favorably with peers'. Its 3.4%...

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