Research Update: Spain-Based Sabadell Outlook Revised To Negative Amid Economic Hit Associated With COVID-19; 'BBB/A-2' Ratings Affirmed

Despite governments' measures to contain the COVID-19 pandemic, European economies, including Spain, face an unprecedented challenge ahead. The harsh economic environment will add substantial pressure to Banco de Sabadell S.A.'s revenues and will exacerbate credit losses, particularly given that the bank's business mix is weighted toward lending to small and midsize companies, which are likely to be more vulnerable in this environment despite government mitigation measures. The bank will generate enough profits to cope with increased lending volumes and remain adequately capitalized, but only by a margin--with little extra room to absorb further deterioration. We are revising our outlook on Sabadell to negative from stable, and affirming our 'BBB/A-2' long- and short-term issuer credit ratings. The negative outlook reflects the

...- Despite governments' measures to contain the COVID-19 pandemic, European economies, including Spain, face an unprecedented challenge ahead. - The harsh economic environment will add substantial pressure to Banco de Sabadell S.A.'s revenues and will exacerbate credit losses, particularly given that the bank's business mix is weighted toward lending to small and midsize companies, which are likely to be more vulnerable in this environment despite government mitigation measures. - The bank will generate enough profits to cope with increased lending volumes and remain adequately capitalized, but only by a margin--with little extra room to absorb further deterioration. - We are revising our outlook on Sabadell to negative from stable, and affirming our '###/A-2' long- and short-term issuer credit ratings. - The negative outlook reflects the possibility of a downgrade if we anticipate Sabadell's capitalization is deteriorating, given its limited buffer to absorb a worse performance than currently...

Research Update