Scope Ratings has today confirmed the long-term A ratings of BBVA, with stable outlook. The rating action follows the announcement by BBVA of the forthcoming acquisition of Catalunya Banc for a total price consideration of EUR 1.187bn.

Scope Ratings commented positively on BBVA’s main strategic rationale for the planned acquisition, namely significantly enhancing its market position in the economically attractive Spanish region of Catalonia. While BBVA’s exposure to Spanish credit risk will marginally increase (58% on a pro-forma basis from 54% in 2013), the rating agency highlighted the fact that the Catalunya Bank acquisition is occurring at a time juncture when the potential for gradual recovery in Spain may become higher than the risk of further credit weakening.

The rating agency cautioned that the planned acquisition would affect to some extent BBVA’s capital position, with a 55 bps negative impact on the CET1 ratio. Pointing to BBVA’s significant and geographically well diversified earnings capacity, Scope added however that in the medium term the group should be able to replenish and build further its capital base.

Commenting on Catalunya Banc, Scope noted that more safety in its balance sheet has been restored through the transfer of EUR 16.5bn of real estate assets to SAREB and having gone through a recapitalisation process. The current loan book consists mainly of residential mortgages, with a low NPL ratio of 4% and adequate provisions. The bond portfolio of the bank is also straightforward, with the bulk of exposure in Spanish sovereign or sovereign guaranteed bonds, as well as ESM bonds. The main area of uncertainty is around the EUR3.5bn in deferred tax assets (DTAs), but the transaction includes a price adjustment contingent to the treatment of these DTAs.

For these reasons, Scope added that the planned acquisition is not expected to materially change BBVA’s consolidated risk fundamentals despite the temporary capital reduction.

The transaction is expected to close in Q1 2015, subject to the completion of the sale of EUR6.4bn mortgage portfolio to Blackstone.

Confirmed with stable outlook were BBVA’s Issuer Credit-Strength Rating (ICSR) and senior long-term debt ratings of A. The short term rating remains S-1 with stable outlook.