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Bankinter S.A.: Modest Impact from COVID-19 on Q1 2020 Results, More to See in Coming Quarters

Bankinter S.A. (Bankinter or the Bank) reported EUR 130 million of net attributable income, down 10% YoY. Results were impacted by lower trading gains and higher provisions for credit losses related to anticipated credit losses due to the impact of the Coronavirus Disease (COVID-19). Despite the current modest impact from COVID-19, DBRS Morningstar's view is that the crisis will impact the Bank’s profitability and asset quality in a more significant way in coming quarters.

Most of Bankinter´s reported figures do not reflect the impact of the COVID-19 crisis as the results only incorporate a few days of the crisis, as the national lockdown in Spain was in place from 14 March. As a result, most of the Bank´s positive dynamics remained in place in Q1. On a like-to-like basis (excluding the EVO business which was acquired in Q2 2019), Net Interest Income (NII) increased 6.8% YoY, Net Fees 5% YoY and lending volumes were strong. The Bank has slightly changed some of its guidance for 2020, but continues to expect growth in both NII and Net Fees. The Non-Performing Loan ratio was stable at 2.9% compared to 2.8% at end-2019.

Nevertheless, the COVID-19 crisis started to affect some items. First, operating expenses (on a like-to-like basis) were down 7.6% YoY as the Bank is reducing administrative costs and staff variable compensation in this challenging environment. Loan loss provisions increased and Cost of Risk (as calculated by DBRS Morningstar) went up to 47bps during Q1 2020 from an average of 25bps in the previous four quarters (Exhibit 1). The Bank expects a Cost of Risk of between 50-70 bps during 2020. Lastly, CET1 capital ratios were down 14bps QoQ, affected by a 51bps reduction as a result of the valuation of its fixed income portfolio; partly compensated for by retained earnings.

In relation to the implementation of COVID-19 relief measures, Bankinter has been allocated EUR 2.25 billion of state guarantees, which are linked to EUR 2.7 billion of funding (around 5% of current net loans). The Spanish state guarantee program amounts to EUR 100 billion, of which EUR 40 billion has been already allocated. Lastly, the Bank has announced that only 1,500 clients are benefiting from a loan moratorium (either public or private).


DBRS Morningstar’s view is that the COVID-19 crisis will impact the Bank’s profitability in a more significant way in coming quarters. The economic effects resulting from the coronavirus pandemic will translate into weaker lending growth, lower fees and commissions as well as higher loan loss provisions. This scenario coupled with additional negative pressure on Bankinter´s revenues, due to the planned listing of its insurance subsidiary Linea Directa (LDA), triggered our last rating action on April 15. DBRS Morningstar confirmed the ratings of Bankinter at A (low) but the Trend was revised to Negative from Stable.

Nevertheless, DBRS Morningstar also considers that Bankinter´s solid core profitability, relatively higher exposure to affluent individuals, which are likely to be less affected in this environment, and good risk management record could help to mitigate some of the negative impact of this crisis on its credit fundamentals.