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What You Should Know About CaixaBank SA.’s (BME:CABK) Risks

CaixaBank SA. (BME:CABK) is a large, commercial bank with a market capitalisation of €22.31B. The biggest risk most large banks face is credit risk, measured by the level of bad debt it writes off. Large commercial banks like Bank of America, Wells Fargo Bank and JP Morgan Chase had lending portfolios that were exposed to the turbulent credit market during the 2008 recession which led to billion dollar losses in shareholder equity. This led to investors losing trust in these once stable financial stocks. Levels of bad debt and liabilities can be useful insights into CaixaBank’s engagement with risky lending practices and operational prudency. Today we will talk about some important bank-specific metrics to better understand financial stock investments before taking the plunge. Check out our latest analysis for CaixaBank

BME:CABK Historical Debt Jun 4th 18
BME:CABK Historical Debt Jun 4th 18

How Much Risk Is Too Much?

If bad loans comprise of more than 3% of CaixaBank’s total loans, it is seen as engaging in risky lending practices above the prudent level. Loans that are “bad” cannot be recovered by the bank and are written off as expenses which comes out directly from its profit. A bad debt ratio of 6.12% is extremely high, considering most banks exhibit ratios lower than the appropriate threshold of 3%. This means CaixaBank shows poor bad debt management and is very much exposed to a higher chance of default.

Does CaixaBank Understand Its Own Risks?

CaixaBank’s understanding of its risk level can be estimated by its ability to forecast and provision for its bad loans. The bank has poorly anticipated the factors contributing to higher bad loan levels if it writes off more than 100% of the bad debt it provisioned for. This begs the question – does CaixaBank understand the risks it has taken on? With a bad loan to bad debt ratio of 53.3%, CaixaBank has under-provisioned by -46.7% which is below the sensible margin of error, illustrating room for improvement in the bank’s forecasting methodology.

How Big Is CaixaBank’s Safety Net?

Handing Money Transparent
Handing Money Transparent

CaixaBank makes money by lending out its various forms of borrowings. Deposits from customers tend to bear the lowest risk given the relatively stable amount available and interest rate. The general rule is the higher level of deposits a bank holds, the less risky it is considered to be. CaixaBank’s total deposit level of 68.03% of its total liabilities is within the sensible margin for for financial institutions which generally has a ratio of 50%. This indicates a prudent level of the bank’s safer form of borrowing and a prudent level of risk.

Next Steps:

Even though CaixaBank’s level of deposits is sensible relative to its liabilities, it carries risk on the bad debt front by carrying a high level of the risky asset as well as exhibiting poor provisioning. Moving forward, this may mean its profits could be lower than expected. The potential for an adverse effect on CaixaBank’s cash flow diminishes our confidence in CaixaBank as a stock investment. We’ve only touched on operational risks for CABK in this article. But as a stock investment, there are other fundamentals you need to understand. Below, I’ve compiled three important aspects you should look at:

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  1. Future Outlook: What are well-informed industry analysts predicting for CABK’s future growth? Take a look at our free research report of analyst consensus for CABK’s outlook.

  2. Valuation: What is CABK worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether CABK is currently mispriced by the market.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.