The ratings acknowledge the strengthened retail franchise in Spain following the acquisition of BMN. Among the domestically oriented franchises remaining in Spain, Scope views Bankia as one of the best-positioned, thanks in part to significant restructuring measures over the past few years. Having successfully delivered its ambitious plan in 2012-15, the bank is in Scope’s view well placed to sustainably deliver high single-digit returns without taking on excessive risk.

Revenues and profits remain under pressure from a difficult interest rate environment, but asset quality continues to improve – lowering the need for new provisions going forward. Ambitious volume growth targets in business lending and consumer finance should over time shift Bankia’s mix towards higher-margin segments, supporting the top line.

Despite being ultimately controlled by the Spanish government, Scope does not assign any additional rating notch for state support, as the agency expects the Spanish government to gradually divest its stake in Bankia. The relative political instability in Spain in recent years adds to the uncertainty around the timing of such divestments.

Download the rating report here.