ratings our advanced loss given failure (lgf) analysis ... · baseline credit assessment (bca) to...

FINANCIAL INSTITUTIONS

CREDIT OPINION17 May 2017

Update

RATINGS

Banco Popular Espanol, S.A.Domicile Spain

Long Term Debt (P)B1

Type Senior Unsecured MTN- Dom Curr

Outlook Not Assigned

Long Term Deposit Ba3

Type LT Bank Deposits - FgnCurr

Outlook Negative

Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.

Contacts

Maria Vinuela 34-91-768-8237Assistant VicePresident - [email protected]

Maria Cabanyes 34-91-768-8214Senior Vice [email protected]

Carola Schuler 49-69-70730-766Managing Director [email protected]

Pedro Rodriguez 34-91-768-8244Associate [email protected]

Banco Popular Espanol, S.A.Update Following Improved Macro Profile

Summary Rating RationaleOn 21 April 2017, we downgraded Banco Popular Espanol, S.A.'s (Popular) long-term depositratings to Ba3 from Ba1 and the bank's long-term senior unsecured debt ratings to B1 fromBa2 with a negative outlook. At the same time, we downgraded: (1) the bank's standalonebaseline credit assessment (BCA) to b3 from b1; and (2) its counterparty risk (CR) assessmentto Ba2(cr) from Baa3(cr). For further details, please see “Moody's downgrades BancoPopular's senior unsecured debt ratings to B1 and deposit ratings to Ba3; outlook negative”.

Popular’s Ba3/Not-Prime deposit ratings and its B1/Not Prime senior debt ratings reflect (1)the bank’s b3 baseline credit assessment (BCA); (2) a two-notch and one-notch uplift fromour Advanced Loss Given Failure (LGF) analysis, respectively; and (3) one notch of uplift fromour assumptions of moderate government support. Popular’s Counterparty Risk Assessment(CR Assessment) is positioned at Ba2(cr)/Not-Prime(cr).

Popular’s BCA of b3 reflects the bank’s constrained financial profile, including its weakenedsolvency levels, which are rapidly deteriorating against the background of still very significantasset quality challenges, and a modest recurrent bottom-line profitability. However, thebank’s BCA also positively reflects Popular’s strong franchise value in the profitable small andmedium-sized enterprises (SME) market and its resilient funding profile with a high share ofdeposit funding. We believe that Popular is under increasing pressure to urgently improveits risk-absorption capacity and accelerate the execution of its de-risking strategy (forfurther details please see “FAQ: Slow Progress Towards Strategic Targets Triggers NegativeOutlook”).

Exhibit 1

Rating Scorecard - Key Financial Ratios

19.8% 9.2%

-2.4%32.6% 20.6%

0%

5%

10%

15%

20%

25%

30%

35%

-5%

0%

5%

10%

15%

20%

25%

Asset Risk:Problem Loans/

Gross Loans

Capital:Tangible Common

Equity/Risk-WeightedAssets

Profitability:Net Income/

Tangible Assets

Funding Structure:Market Funds/

Tangible BankingAssets

Liquid Resources:Liquid Banking

Assets/TangibleBanking Assets

Solvency Factors (LHS) Liquidity Factors (RHS)

Banco Popular Espanol (BCA: b3) Median b3-rated banks

So

lve

ncy F

acto

rs

Liq

uid

ity F

acto

rs

Source: Moody's Financial Metrics

https://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=PBC_1071841

https://www.moodys.com/research/Moodys-downgrades-Banco-Populars-senior-unsecured-debt-ratings-to-B1--PR_365395

https://www.moodys.com/research/Moodys-downgrades-Banco-Populars-senior-unsecured-debt-ratings-to-B1--PR_365395

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1057971


MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Credit Strengths

» Sound brand recognition and market positioning, especially in the SME segment.

» Funding profile with high reliance on deposit funding.

Credit Challenges

» Weakened solvency levels are now closer to minimum regulatory capital requirements

» Very high level of problematic exposures on absolute and relative terms when compared to the bank's loss-absorbing balance sheetcushions.

» Modest recurring earnings and a high expected provisioning effort put pressure on the bank's bottom-line profitability

Rating OutlookThe negative outlook on the long-term deposit and senior unsecured debt ratings captures the downward rating pressure that coulddevelop if the bank fails to restore adequate solvency levels and reduce the very high stock of problematic assets, thereby raisingquestions about the future viability of the bank. A significant deterioration in the bank's liquidity position could also exert downwardpressure on the ratings.

Popular's negative outlook also reflects the downward pressure on the bank's ratings if it does not meet Moody's expectation regardingits liability structure and balance sheet deleveraging.

Factors that Could Lead to an UpgradeAn upgrade of Popular's ratings is currently unlikely given the negative outlook. However, the bank's BCA could be upgraded as aconsequence of: (1) a significant improvement of asset risk indicators coupled with a higher than expected improvement in the bank'srisk-absorption capacity; and (2) a sustained recovery of recurrent profitability levels.

Any change to the BCA would likely also affect debt and deposit ratings, as they are linked to the BCA. Popular’s senior unsecured debtand deposit ratings could also change as a result of changes in the loss-given-failure faced by these securities.

In addition, any changes to our considerations of government support could trigger downward pressure on the bank's deposit and debtratings.

Factors that Could Lead to a DowngradeDownward pressure could be exerted on Popular's BCA if: (1) the bank fails to improve its risk-absorption capacity due to continuedasset quality weakening and/or additional provisioning efforts in excess of its organic and inorganic capital generation capacity; and/or(2) the bank's liquidity profile deteriorates significantly.

Any change to the BCA would likely also affect debt and deposit ratings, as they are linked to the BCA. Popular’s senior unsecured debtand deposit ratings could also change as a result of changes in the loss-given-failure faced by these securities. In particular, Popular’ssenior debt and deposit ratings could be downgraded if the bank does not reduce the size of its balance-sheet as expected.

In addition, any changes to our considerations of government support could trigger downward pressure on the banks deposit and debtratings.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 17 May 2017 Banco Popular Espanol, S.A.: Update Following Improved Macro Profile


Key Indicators

Exhibit 2

Banco Popular Espanol, S.A. (Consolidated Financials) [1]12-162 12-152 12-142 12-133 12-123 Avg.

Total Assets (EUR million) 147,926 158,650 161,456 146,710 157,618 -1.64

Total Assets (USD million) 156,025 172,341 195,371 202,157 207,802 -6.94

Tangible Common Equity (EUR million) 6,502 9,824 8,032 6,167 4,406 10.24

Tangible Common Equity (USD million) 6,858 10,672 9,720 8,498 5,809 4.24

Problem Loans / Gross Loans (%) 19.8 18.0 19.6 20.3 12.4 18.05

Tangible Common Equity / Risk Weighted Assets (%) 9.2 11.5 8.9 7.3 4.6 9.96

Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) 117.0 103.4 122.5 142.7 101.8 117.55

Net Interest Margin (%) 1.5 1.5 1.6 1.6 1.9 1.65

PPI / Average RWA (%) 1.0 1.9 2.2 1.9 2.0 1.76

Net Income / Tangible Assets (%) -2.4 0.0 0.0 -0.3 -1.7 -0.95

Cost / Income Ratio (%) 71.7 50.7 48.7 49.4 47.9 53.75

Market Funds / Tangible Banking Assets (%) 32.6 34.4 41.5 34.9 44.1 37.55

Liquid Banking Assets / Tangible Banking Assets (%) 20.6 26.6 27.0 22.3 16.0 22.55

Gross Loans / Due to Customers (%) 124.3 122.4 140.1 136.4 161.3 136.95

[1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; IFRS [3] Basel II; IFRS [4] Compound Annual Growth Rate (%).Any interim period amounts presented are assumed to be fiscal year end amounts for calculation purposes [5] Simple average of periods presented [6] Simple average of Basel III periodspresentedSource: Moody's Financial Metrics

Detailed Rating ConsiderationsSTRONG FRANCHISE VALUE, ESPECIALLY IN THE SME SEGMENTWith total assets of EUR147 billion as of end-March 2017, Popular is the sixth-largest banking group in Spain, with market shares of7.5% in loans and 6.6% in deposits at end-December 2016.

The bank holds particularly high market shares in products traditionally linked to the corporate segment, especially to SMEs. Despitecurrent intense competition in the market, Popular has been able to increase its already strong market positioning. As such, the banksreported domestic market share in loans to SMEs stood at 17.7% as of December 2016, up from 16.5% a year earlier.

Popular’s Macro Profile now stands at Strong- (Moderate + previously), following the recent improvement of the Macro Profile of Spain,although the bank has operations in other countries (Portugal and United States). At end-December 2016, Spain accounted for morethan 90% of Popular’s total assets. The change in the country's Macro Profile assessment reflects the significant deleveraging of theprivate sector and thereby the achieved improvements in the operating conditions for banks in Spain (for further detail please see“Spain Macro Profile: Strong -”).

VERY HIGH LEVEL OF PROBLEMATIC EXPOSURESAt end-March 2017, Popular’s non-performing loan (NPL) ratio stood at a high 19.7%, up from 17.6% a year earlier and well above theaverage for the banking system (8.6% at end-February 2017, latest available data). In addition to NPLs, Popular has other problematicexposures, related to realestate (RE) assets acquired by the bank over the past few years. If these are included, the NPL ratio rises to32.2% at end-March 2017, above the 29.5% reported a year before, and also exceeding the system average of around 15% at end-December 2016 (latest available data).

Popular announced in May 2016 its revised corporate strategy, which targeted an accelerated reduction of Non-Performing Assets(NPAs), defined as NPLs and RE assets, by €15 billion over the next three years. Since then, the bank has made little progress in itsNPA reduction plan. Popular’s stock of NPAs increased by €2.2 billion to €37.2 billion in 2016, mainly due to the reclassification ofrestructured and substandard loans as a result of regulatory changes introduced by the Bank of Spain (new “Anejo IX” of Bank ofSpain's circular 4/2016. For further detail on the circular please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1053774). When this one-off reclassification is excluded, the bank's stock of NPAs fell by €1.0 billion in 2016, just 7% of the€15 billion target (see Exhibit 3). Half of the €1.2 billion reduction was achieved through the sale of two non-performing portfolios, and






the remaining €0.6 billion through organic reduction. In Q1 2017, the bank has reduced its stock of NPAs by additional €573 million to€36.6 billion (out of which €230 million correspond to NPL portfolio sales).

Exhibit 3

Popular's NPAs increased in 2016

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

NPLs (gross) RE assets NPL ratio NPL ratio (system) NPA ratio

Reclassification

Source: Banco Popular, Bank of Spain and Moody's

Furthermore, we note the bank has also performing refinanced loans, accounting for 4.1% of gross loans at the end of December 2016(latest available data). The aggregation of these refinanced loans to the overall problematic exposures ratio, which would therefore riseto 35.7%, indicates the magnitude of the existing balance-sheet pressures the bank faces.

As part of its 2016-2018 corporate strategy, which is currently under review, Popular also intended to increase its NPA coverage ratioto 50% from 38% in 2016, but managed to raise it only to 45% as a result of the rise in NPAs, and despite a higher than expectedprovisioning effort (compared to a system average of 50%). Coverage of NPLs and RE assets now stands at 52% and 38% respectively,up from 43% and 35% at the end of 2015. In Q1 2017, the bank only managed to maintain the coverage of NPAs stable at 45%1.

We believe a significant reduction in Popular's stock of NPAs will only be achieved through the spin-off of some of these assets as partof a bad bank-type solution, and/or through a very active disposal strategy. The increase in Popular's NPA coverage levels during 2016is supportive of its efforts to reduce its stock NPAs, although we note that the bank's coverage remains below that of some domesticpeers. As a result, we believe it will be challenging for the bank to accelerate the sale of NPAs without additional haircuts. That said, wenote positively that the bank has laid the groundwork for portfolio sales with two disposals in 2016.

Popular’s Asset Risk score of caa1 reflects not only the banks NPL ratio, but also Popular’s sizeable exposure to other non-earningassets, such as RE assets. The potential outcome of further portfolio disposals have not been factored in our assigned Asset Risk score.

WEAKENED SOLVENCY LEVELS ARE NOW CLOSER TO MINIMUM REGULATORY CAPITAL REQUIREMENTSPopular’s risk absorption capacity, measured as the ratio of the bank's NPAs to its balance sheet cushions (loan loss reserves, real estatereserves and shareholders’ equity), stood at a high 134% at end-March 2017, only marginally below the 138% reported a year earlier,and well above the average for the system of 65% (as of December 2016, latest available data). This was mainly due to the rise inPopular's NPAs, which offset the increase in its balance sheet cushions (see Exhibit 4).



Exhibit 4

Popular's risk absorption remained broadly stable in 2016

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

0

5,000

10,000

15,000

20,000

25,000

30,000

Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Shareholder's equity LLRs RE reserves NPAs / (SHE + LLRs + RE reserves)

Source: Banco Popular and Moody's

Popular's €3.5 billion loss for the year amply exceeded the €2.5 billion capital raised by the bank in June 2016, and resulted in a declinein the bank's capital ratios. The bank's Tangible Common Equity (TCE) to risk-weighted assets (RWA) ratio stood at 9.6% at end-December 2016, down from 12.0% a year earlier. In terms of regulatory capital ratios, Popular reported a phased-in Common EquityTier 1 (CET1) ratio of 10.0% and a fully loaded CET1 ratio of 7.3% at end-March 2017, down from 12.8% and 11.1% respectively a yearearlier.

Popular's Pillar II Supervisory Review and Evaluation Process (SREP) phased-in CET1 requirement for 2017 stands at 7.875%, and its totalcapital requirement at 11.375%. Popular's total capital ratio stood at 11.91% at end-March 2017, well below the 13.5% reported a yearearlier and only 53 basis points above its regulatory capital requirement (equal to approximately €326 million; see Exhibit 5).

Exhibit 5

Banco Popular’s Total Capital Ratio and Headroom over SREP Total Capital Requirement

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016 Q1 2017

Φ2.5 billion

capital

increase

Headroom 53

bps or Φ326

million

Note: *Popular’s estimated total capital ratio.Source: Banco Popular

Popular’s 2016 annual report noted a set of capital-enhancing measures, which, according to the bank and its auditors, will allowcompliance with regulatory capital ratios this year. These measures include the sale of treasury shares (which generated 31 basis pointsin Q1 2017), the reduction of fixed-income capital losses (which the bank estimated will benefit its capital by 105 basis points) and thedivestment of non-strategic businesses (a 100-basis-point benefit). However, we believe it will be challenging for the bank to complywith its SREP total capital requirement without raising additional capital.

Popular’s Capital score of caa1 reflects the bank’s very weak risk absorption capacity and our assessment that the bank needs toincrease its solvency levels to be able to raise its coverage of NPAs further and significantly reduce the stock of problematic assets.



MODEST RECURRING EARNINGS AND HIGH EXPECTED PROVISIONING EFFORT PUT PRESSURE ON THE BANK'SBOTTOM LINE PROFITABILITYPopular’s recurring earnings have been pressured by the banks high level of non-earning assets, historical low interest rates in Europeand subdued business growth against the background of the system's deleveraging. These factors, combined with lower trading gainsand extraordinary restructuring costs, led to a sharp 55% decline in the bank’s pre-provision income 2 in 2016 (see Exhibit 6). If non-recurring trading gains and costs are excluded, the bank's pre-provision income still decreased by a significant 23%. In Q1 2017, thebank's pre-provision continued the declining trend and fell by 26% compared to a year earlier (6% excluding extraordinary tradinggains).

Exhibit 6

Popular's recurring profitability deteriorated in 2016

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

2012 2013 2014 2015 2016

Pre-provision income Net income€ mio.

TI TITI

TI

TI

Note: TI = Trading incomeSource: Banco Popular

Popular’s bottom-line profitability has been affected not only by the deterioration in the bank’s earnings generation capacity, but alsoby the high level of provisions it booked in 2016. These provisions led to a loss for the year of €3.5 billion, which represents -2.4% ofthe bank’s tangible banking assets, well below the €106 million reported a year earlier. In Q1 2017, the bank has reported a loss of €137million (compared to a profit of €93.8 million a year earlier).

Going forward we expect the bank to achieve cost savings as a result of cost-cutting initiatives that have already been implemented,including a sharp staff reduction plan and the merging of branches. This will ease some pressure on the bank’s top-line earnings.However, we believe that Popular will need to further increase its coverage of NPAs in order to successfully execute its NPA reductionplan, and this will negatively affect its bottom-line profitability. To achieve the 50% coverage levels targeted in 2016, the bank wouldneed to book an additional €1.8 billion of provisions, which would likely trigger a loss in 2017 (absent any extraordinary gains). This isreflected in our assigned profitability score of caa2.

HIGH RELIANCE ON DEPOSIT FUNDINGRetail funding is Popular’s main funding source at 65% of total funding at end-March 2017 and compares favourably with its domesticpeers. However, we note that the bank’s customer deposits declined to €78.5 billion in 2016 (€82.2 billion a year earlier; see Exhibit 7)and continued declining to €77.2 billion in Q1 2017.



Exhibit 7

Evolution of Popular's funding and liquidity

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Q4 2011 Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016

Adj. customer deposits Market funding / TBA Liquid assets / TBA € mio.

Source: Banco Popular and Moody’s

Market funding represented 32.6% of Popular’s tangible banking assets at end-December 2016 (latest available data). The banksignificantly increased its European Central Bank (ECB) funding to €23.5 billion at end-March 2017 (€14.2 billion a year earlier),equivalent to a very high 16.0% of total assets, well above the 5.4% average for the Spanish banking system at end-February 2017(latest available data). We note that this funding was borrowed from the ECB’s Targeted Longer-term Refinancing Operations II.Popular’s remaining wholesale funding is mainly composed of covered bonds (8% of total funding). We assign a Funding Structurescore of b1 to Popular, two notches below the macro-adjusted score, to reflect our expectation that the bank’s deterioratedcreditworthiness may result into additional pressure on the bank's funding profile.

Popular’s liquid banking assets accounted for 20.6% of its tangible banking assets at end-December 2016. According to our liquiditystress test, based on latest available information as at end-March 2017, Popular remains resilient to a scenario of capital markets beingclosed for a period of one year and deposit outflows of 5% for retail deposits and 25% for corporate deposits. We assign a LiquidResources score of ba3 to Popular, three notches below the macro adjusted score of baa3, to reflect the encumbrance of some of thebank's liquid assets.

The bank reported a Liquidity Coverage Ratio (LCR) of 146% at end-March 2017.

Notching ConsiderationsLOSS GIVEN FAILUREWe apply our advanced LGF analysis to Popular given that it is subject to the EU Bank Recovery and Resolution Directive (BRRD), whichwe consider to be an Operational Resolution Regime. We assume residual tangible common equity of 3% and losses post-failure of8% of tangible banking assets, a 25% run-off in “junior” wholesale deposits, a 5% run-off in preferred deposits, and assign a 25%probability to deposits being preferred to senior unsecured debt. These are in line with our standard assumptions.

For Popular’s deposits and senior unsecured debt, our LGF analysis considers the likely impact on loss-given-failure of the combinationof its own volume and subordination. Our LGF analysis indicates a very low loss-given-failure for deposits and a low loss-given-failurefor senior unsecured debt, which lead us to position Popular’s Preliminary Rating Assessments two notches and one notch above theAdjusted BCA, respectively.

Please refer to the Loss Given Failure and Government Support table at the bottom of the scorecard. For junior securities, our initialLGF analysis confirms a high level of loss-given-failure, given the small volume of debt and limited protection from more subordinatedinstruments and residual equity. We also incorporate additional downward notching for junior subordinated debt and preference sharesinstruments to reflect coupon suspension risk ahead of a potential failure.



GOVERNMENT SUPPORTThe implementation of the BRRD has caused us to reconsider the potential for government support to benefit certain creditors ofPopular. We now assign a moderate probability of government support for this sixth-largest bank in Spain, resulting in one notch ofuplift for the deposit and senior debt ratings.

For other junior securities, we continue to view the potential for government support as low and as such these ratings do not includeany related uplift.

COUNTERPARTY RISK ASSESSMENTCR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt anddeposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial losssuffered in the event of default and (2) apply to counterparty obligations and contractual commitments rather than debt or depositinstruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performanceobligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities.

Popular’s CR Assessment is positioned at Ba2(cr).

The CR Assessment, prior to government support, is positioned three notches above the Adjusted BCA of b3, based on the cushionagainst default provided by subordinated instruments amounting to 16.0% of Tangible Banking Assets to the senior obligationsrepresented by the CR Assessment. The main difference with our Advanced LGF approach used to determine instrument ratings isthat the CR Assessment captures the probability of default on certain senior obligations, rather than expected loss, therefore we focuspurely on subordination and take no account of the volume of the instrument class.

The CR Assessment also benefits from one notch of government support, in line with our support assumptions on deposits andsenior unsecured debt. This reflects our view that any support provided by governmental authorities to a bank which benefits seniorunsecured debt or deposits is very likely to benefit operating activities and obligations reflected by the CR Assessment as well,consistent with our view that governments are likely to maintain such operations as a going-concern in order to reduce contagion andpreserve a bank’s critical functions.

About Moody’s Bank ScorecardOur Scorecard is designed to capture, express and explain in summary form our rating committee’s judgment. When read inconjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our Scorecardmay materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strongdivergence). The Scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down toreflect conditions specific to each rated entity.



Rating Methodology and Scorecard Factors

Exhibit 8

Banco Popular Espanol, S.A.Macro FactorsWeighted Macro Profile Strong - 100%

Factor HistoricRatio

MacroAdjusted

Score

CreditTrend

Assigned Score Key driver #1 Key driver #2

SolvencyAsset RiskProblem Loans / Gross Loans 19.8% b3 ← → caa1 Non lending

credit riskCapitalTCE / RWA 9.2% ba2 ↓ caa1 Expected trend Stress capital resilience

ProfitabilityNet Income / Tangible Assets -2.4% caa3 ↑ caa2 Expected trend

Combined Solvency Score b2 caa1LiquidityFunding StructureMarket Funds / Tangible Banking Assets 32.6% ba2 ↓ b1 Expected trend

Liquid ResourcesLiquid Banking Assets / Tangible Banking Assets 20.6% baa3 ← → ba3 Asset encumbrance

Combined Liquidity Score ba1 b1Financial Profile b3

Business Diversification 0Opacity and Complexity 0Corporate Behavior 0

Total Qualitative Adjustments 0Sovereign or Affiliate constraint: Baa2Scorecard Calculated BCA range b2-caa1Assigned BCA b3Affiliate Support notching 0Adjusted BCA b3

Balance Sheet in-scope(EUR million)

% in-scope at-failure(EUR million)

% at-failure

Other liabilities 48,008 36.1% 56,061 42.2%Deposits 78,951 59.4% 70,898 53.4%

Preferred deposits 58,424 44.0% 55,503 41.8%Junior Deposits 20,527 15.5% 15,396 11.6%

Senior unsecured bank debt 571 0.4% 571 0.4%Dated subordinated bank debt 699 0.5% 699 0.5%Junior subordinated bank debt 100 0.1% 100 0.1%Preference shares (bank) 500 0.4% 500 0.4%Equity 3,984 3.0% 3,984 3.0%Total Tangible Banking Assets 132,813 100% 132,813 100%



De jure waterfall De facto waterfall NotchingDebt classInstrumentvolume +

Subordination

Sub-ordination

Instrumentvolume +

Subordination

Sub-ordination

De jure De factoLGF

notchingguidance

versusBCA

AssignedLGF

notching

Additionalnotching

PreliminaryRating

Assessment

Counterparty Risk Assessment 16.0% 16.0% 16.0% 16.0% 3 3 3 3 0 ba3 (cr)Deposits 16.0% 4.0% 16.0% 4.4% 1 1 1 2 0 b1Senior unsecured bank debt 16.0% 4.0% 4.4% 4.0% 1 -1 0 1 0 b2Dated subordinated bank debt 4.0% 3.5% 4.0% 3.5% -1 -1 -1 -1 0 caa1Non-cumulative bank preference shares 3.4% 3.0% 3.4% 3.0% -1 -1 -1 -1 -2 caa3 (hyb)

Instrument class Loss GivenFailure notching

AdditionalNotching

Preliminary RatingAssessment

GovernmentSupport notching

Local CurrencyRating

ForeignCurrency

RatingCounterparty Risk Assessment 3 0 ba3 (cr) 1 Ba2 (cr) --Deposits 2 0 b1 1 Ba3 Ba3Senior unsecured bank debt 1 0 b2 1 B1 --Dated subordinated bank debt -1 0 caa1 0 Caa1 --Non-cumulative bank preference shares -1 -2 caa3 (hyb) 0 Caa3 (hyb) --Source: Moody's Financial Metrics

Ratings

Exhibit 9Category Moody's RatingBANCO POPULAR ESPANOL, S.A.

Outlook NegativeBank Deposits Ba3/NPBaseline Credit Assessment b3Adjusted Baseline Credit Assessment b3Counterparty Risk Assessment Ba2(cr)/NP(cr)Senior Unsecured MTN -Dom Curr (P)B1Subordinate -Dom Curr Caa1Pref. Stock Non-cumulative -Dom Curr Caa3 (hyb)Commercial Paper -Dom Curr NPOther Short Term -Dom Curr (P)NP

BPE FINANCIACIONES, S.A.

Outlook NegativeBkd Senior Unsecured -Dom Curr B1Bkd Subordinate -Dom Curr Caa1

POPULAR CAPITAL, S.A.

BACKED Pref. Stock Non-cumulative -DomCurr

Caa3 (hyb)

PASTOR PARTICIP. PREFERENT., S.A. UNIPERSONAL

BACKED Pref. Stock Non-cumulative -DomCurr

Caa3 (hyb)

BPE FINANCE INTERNATIONAL LIMITED

Outlook NegativeBkd Senior Unsecured B1

Source: Moody's Investors Service



Endnotes1 Excluding mortgage floors provisions

2 Moody’s definition of pre-provision income excludes the share of associates profit / joint venture profit



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