Valencia Floods: Morningstar Thinks Spanish Banks Can Withstand the Shock

A quick note from Morningstar DBRS on the impact of the Valencia floods;

Morningstar DBRS has released a commentary discussing the potential impact of the recent Valencia floods on seven Spanish banks, BBVA, Caixabank, Banco de Sabadell, Bankinter, Abanca, Kutxabank and Cajamar.

Key highlights include:
— Despite the severity of the floods, we consider the impact to be manageable for Spanish banks given their strong earnings generation capacity, their solid capitalisation, as well as the measures the government has put in place to mitigate the final impact.
— We expect a temporary moderate increase in Stage 2 and Stage 3 loans in the coming quarters and a moderate increase in loan loss provisions.

“Although the final exposure of each bank to the flood-affected areas is still not clear, we expect the total impact to be manageable for Spanish banks given their strong earnings generation capacity and solid capitalisation”, noted Maria Parra, Vice President of European Financial Institution Ratings at Morningstar DBRS. “In addition, we expect a temporary moderate deterioration in the banks’ asset quality that will result in a moderate increase in net cost of risk in the short term.”