Bankia To Reach Highest CET1 In Spain After Changes To Assess Its Retail Mortgage Line Regulatory Capital

Bankia-BMN mergerBankia headquarters in Madrid

Bankia has been authorized by the ECB to apply a material change in the Probability of Default (PD) parameters used for its calculation of credit risk linked to its retail mortgage business, according to a statement it published on market regulator CNMV’s website on Tuesday. The change was requested by the bank in October 2018.

Bankia will introduce this change in 3Q20 for the entire retail mortgage portfolio originating in the Bankia perimeter, excluding the positions originated by Banco Mare Nostrum prior to its integration.

The authorisation will allow Bankia to reduce its risk-weighted assets by a combined total of around 8.2 billion euros, representing an increased of 112 basis points for Bankia and 48 for Banco Mare Nostrum, so that the Spanish bank could raise its CET1 capital ratio from 13.27% to 14.87%.

For Bankinter’s analysts, this is “good news” because Bankia will thus become the institution with the best CET1 capital ratio in Spain and among the best in Europe (range between 12.5%/15.5%). “It is also an implicit recognition by the ECB of the quality of the investment portfolio”, the analysis’ firm adds.

This happens at a time when Bankia is in merger talks with Caixabank.

This operation is expected to improve Bankia’s capacity to face the challenges posed by the current depressed economic situation and a recovery that could take longer than expected.

In this context, the experts at Santander Corporate & Investment consider the ECB’s authorization to recognize a lower risk in Bankia’s mortgage portfolio to be very positive:

“This is promising in terms of taking advantage of Bankia’s strength in combining the cushions available to the two institutions to face a more difficult environment.”