OREANDA-NEWS. Fitch Ratings has affirmed Instituto de Credito Oficial's (ICO) Long-term Issuer Default Rating (IDR), long-term senior debt rating, and Support Rating Floor (SRF) at 'BBB+'. ICO's Short-term IDR has been affirmed at 'F2' and its Support Rating at '2'.The Outlook on ICO's Long-term IDR is Stable. A full list of rating actions is available at the end of this rating action commentary.

The affirmation follows a peer review of European development banks.

KEY RATING DRIVERS
ICO's IDRs, senior debt ratings and Support Rating Floor are equalised with those of its 100% shareholder, the Spanish government (BBB+/Stable/F2) and are based on our view that there is a high probability that ICO would receive support from the Spanish sovereign if needed. Spain has provided a guarantee for all debt and obligations incurred by ICO when raising funds. This guarantee is explicit, irrevocable, unconditional and direct. Fitch believes that government propensity to provide support to ICO in case of need is strong but its ability is reduced by its ability to do so, as reflected in Spain's sovereign rating.

ICO's ratings reflect its role as a policy bank that provides medium- and longer-term lending to the private and public sector to promote economic and social development in Spain. Lending is driven by the Spanish government's policies. The Spanish government appoints ICO's CEO, sets the institution's annual debt limits and monitor its operations.

In addition to its ordinary lending activity, ICO supported autonomous communities by refinancing their debt maturities in 2014 and contributed to a special purpose fund established to pay the arrears of local governments. In 2015, ICO aims to reinforce its counter-cyclical role as dynamic factor in the recovery of Spain's economy, particularly by expanding the offer of financial services to SMEs. In Fitch's view, ICO is of high strategic importance to the state and no other bank can currently replace ICO's role as the state's financial arm.

Under Spanish law, the government is committed to maintain ICO's regulatory Tier 1 ratio above 9.5%. At end-September 2014, the pro-forma ratio was considerably higher at 22.49%, which demonstrates the government's commitment to keeping the bank adequately capitalised.

The Stable Outlook reflects that on Spain's Long-term IDR.

Fitch does not assign a Viability Rating to ICO as its business model is entirely dependent on the support of its state guarantor.

RATING SENSITIVITIES
ICO's IDRs, Support Rating, Support Rating Floor and senior debt ratings are based on Spain's ratings and are therefore primarily sensitive to changes in the sovereign rating. ICO's ratings are also sensitive to changes in the bank's strategic importance to the government, which Fitch currently does not expect.


The rating actions are as follows:

Long-term IDR affirmed at 'BBB+'; Outlook Stable
Short-term IDR affirmed at 'F2'
Support Rating affirmed at '2'
Support Rating Floor affirmed at 'BBB+'
Long-term programme and long-term senior debt affirmed at 'BBB+'
Market-linked securities affirmed at 'BBB+emr'
Short-term programme and commercial paper affirmed at 'F2'