OREANDA-NEWS. Fitch Ratings has published Spain-based Caja Rural de Castilla-La Mancha, Sociedad Cooperativa de Credito's (CRCLM) Long-term Issuer Default Rating (IDR) at 'BBB', with a Stable Outlook, and Viability Rating at 'bbb'.

At the same time, the agency has published a Short-term IDR of 'F3', a Support Rating (SR) of '5' and a Support Rating Floor (SRF) of 'No Floor' to CRCLM. A full list of rating actions is available at the end of this rating action commentary.

KEY RATING DRIVERS

IDRS AND VR
CRCLM's IDRs are driven by the bank's standalone financial strength, as reflected in the VR. The VR reflects sound asset quality indicators relative to peers, in part reflecting adequate underwriting standards applied by CRCLM over the cycle, and solid capital and liquidity. The VR also reflects the bank's limited geographical diversification, with activities predominantly being in the Spanish province of Toledo; as well as modest underlying profitability, which has been supported by carry trade revenues.

The Stable Outlook on the Long-term IDR reflects Fitch's view that the bank's credit profile is set to remain stable in next 12-18 months.

CRCLM operates in the central Spanish region of Castilla-La Mancha, where it has a deposit market share of roughly 10%, the province of Avila and south Madrid. However, its loan book is concentrated in the Castilian province of Toledo, at about 60% of the total as of end-2014.

The quality of its loan book has proven resilient over the years, favoured by the strong performance of its large primary residential mortgages and minimal real estate developer loans. At end-2014, CRCLM's NPL ratio stood at 3.4%, well below the sector's average of 12.5%, and reserves exceeded problem assets, indicating a conservative approach towards provisioning.

CRCLM is also well capitalised for its risk profile, with a Fitch core capital (FCC) ratio of 15.1% at end-2014, although this benefits from sizeable securities revaluation reserves, equivalent to nearly 20% of FCC.

CRCLM's balance-sheet is funded by an ample and granular retail deposit base. However, it also makes extensive use of repo and ECB funding (equivalent to a high 33% of assets at end-2014) to fund its securities portfolio, made up mainly of Spanish central and regional government bonds. This exposes the bank to market risk and enables it to generate carry trade revenue, which Fitch sees as a low-quality revenue source. This ultimately supports CRCLM's modest profitability in light of its otherwise low-margin banking activity.

SUPPORT RATING AND SUPPORT RATING FLOOR
The SR of '5' and SRF of 'No Floor' reflect Fitch's view that CRCLM's senior creditors can no longer rely on receiving full extraordinary support from the sovereign in the event that the bank becomes non-viable. CRCLM has low systemic importance. Additionally, Spain's implementation of the EU's Bank Recovery and Resolution Directive (BRRD) means senior creditors are likely to participate in losses, if a bank fails. Full application of BRRD, including the bail-in tool, is required across the EU from 1 January 2016. BRRD was transposed into the Spanish legislation in 18 June 2015, with full implementation from 1 January 2016.

RATING SENSITIVITIES

IDRS AND VR
CRCLM's IDRs are sensitive to changes to the VR. Fitch views upward potential for the VR as limited in the foreseeable future, although it could arise from improvements to core banking earnings and/or geographical diversification of its business franchise. This may be achieved through further business growth without compromising leverage and underwriting standards and by reducing market risk through lower investment portfolios.

Conversely, unforeseen shocks to asset quality and/or increased market risk appetite as a measure to offset low-margin core banking margins could trigger a downgrade of the VR.

SUPPORT RATING AND SUPPORT RATING FLOOR
CRCLM's SR and SRF are sensitive to a positive change in the sovereign's propensity to support its banks, which Fitch views as highly unlikely.

The rating actions are as follows:

CRCLM
Long-term Issuer Default Rating (IDR): published at 'BBB'; Outlook Stable
Short-term IDR: published at 'F3'
Viability Rating (VR): published at 'bbb'
Support Rating (SR): published at '5'
Support Rating Floor (SRF): published at 'No Floor'