Summary: Banco de Sabadell S.A.

Valuable commercial banking franchise in Spain, especially in small and midsize enterprises (SMEs). Management's proven ability to successfully implement strategic and integration plans. Geographical diversification provided by the acquisition of U.K.-based bank TSB. Still limited profitability. Lack of scale in the competitive U.K. market. Still sizable portfolio of foreclosed assets in Spain. S&P Global Ratings' stable outlook on Spain-based Banco de Sabadell S.A. indicates that we expect our ratings to remain unchanged over the next 12-24 months, even if Spain's economic environment becomes more supportive. In such a scenario, the bank's capital measures could strengthen beyond our current expectations, but not enough to become a ratings strength. Our current forecast is that the bank's risk-adjusted capital (RAC) ratio will improve

...Outlook: Stable S&P Global Ratings' stable outlook on Spain-based Banco de Sabadell S.A. indicates that we expect our ratings to remain unchanged over the next 12-24 months, even if Spain's economic environment becomes more supportive. In such a scenario, the bank's capital measures could strengthen beyond our current expectations, but not enough to become a ratings strength. Our current forecast is that the bank's risk-adjusted capital (RAC) ratio will improve to about 7.2%-7.5% in 2018 and 2019, supported by earnings retention. Profitability should also improve moderately on the back of solid fee income growth and lower credit provisions, but will remain below the bank's cost of capital. An easing of economic risks in Spain would add some 60 basis points to our current forecasts. Our stable outlook also assumes that the bank will continue to actively reduce its stock of nonperforming assets (NPAs)--both nonperforming loans (NPLs) and real estate--which should fall below 8% by end-2019....

Summary