Text-Fitch rates Banco Nacional De Costa Rica BB+

(The following statement was released by the rating agency.)
SAN SALVADOR/NEW YORK, September 14 (Fitch) Fitch Ratings has assigned a 'BB+'
long-term Issuer Default Rating (IDR) to Banco Nacional [BNDCE.UL] de Costa
Rica (BNCR).
The Rating Outlook is Stable. A full list of BNCR's ratings follows at the end
of this press release.
BNCR's IDRs, Support Rating, and Support Rating Floor are driven by and aligned
to Costa Rica's sovereign ratings (long-term foreign and local currency IDR
'BB+'; Stable Outlook), since the government is the bank's sole shareholder and
it grants an explicit guarantee for BNCR and other state-owned banks. However,
the ability to provide support could be limited, given the country's
sub-investment grade sovereign rating and fiscal constraints.
BNCR's Viability Rating, which represents Fitch's view as to the intrinsic
creditworthiness of an issuer, reflects the bank's solid franchise, ample and
stable funding, and sound liquidity. The Viability Rating also factors the
relatively modest profitability, deteriorated asset quality, and low loan loss
reserves.
The Stable Outlook reflects that Fitch does not anticipate substantial changes
in BNCR's risk profile over the foreseeable future. However, BNCR's ratings may
benefit from improvements in the bank's intrinsic performance, including asset
quality along with a more robust and sustainable profitability. In addition, an
upgrade in Costa Rica's sovereign ratings would lead Fitch to revise BNCR's
IDRs
accordingly. In turn, while a further deterioration in asset quality and/or
capital ratios could trigger a downgrade in BNCR's Viability Rating, IDRs would
not be affected should Costa Rica's sovereign rating remain at the current
levels.
BNCR has the broadest and most diversified depository base in the banking
system, which represents a significant competitive advantage. In terms of
assets, the bank offers universal banking services and keeps its loan portfolio
relatively balanced between wholesale and retail exposures. BNCR complements
its
services with subsidiaries involved in non-credit business activities.
BNCR has recently tempered its appetite for credit risk after its strong
expansion in recent years and the effects of the global financial crisis
resulted in a serious deterioration in loan quality. As of June 2011, 90-days
past due loans accounted for 3.56% of total loans, which compares unfavorably
with the banking system's average of 2.37%. Nonperforming loans, which are
concentrated in real estate exposures, seem to have reached their peak and
should stabilize in the coming months.
BNCR's profitability, restricted by its heavy and rigid operating expense
structure, has traditionally been modest, and profits were further weakened
after 2009 because of increased loan loss provisions. This expense will
continue
to put pressure on 2011 profits, which are expected to be lower than those of
2010. Having absorbed most of the losses for nonperforming assets in 2011,
BNCR's net profits may bounce back in 2012 and profitability metrics should
gradually converge to that of previous years (ROAA over 1.5% and ROAE over
15%).
BNCR exhibits adequate and stable capital ratios, which could be strengthened
over the next year. This increase will be driven by retained earning, although
an issuance of subordinate debt is not ruled out. If the latter occurs, Fitch
will evaluate the subordinated debt's characteristics to define its equity
content. The bank also intends to improve reserve coverage for nonperforming
loans, which has dropped to historically low levels in recent years and
compares
unfavorably with the rest of the banking industry.
Founded in 1914, BNCR is one of Costa Rica's oldest banks and is the largest
one
in that country's financial system. Historically, it has held a dominant
position within the banking system, evidenced in its high market share in both
loans (28.5% as of June 2011) and deposits (30.6%). The bank carries out its
operations through an extensive network of 171 branches and has a staff of
5,697
employees.
Fitch has assigned the following ratings to BNCR:
International ratings
--Long-term IDR at 'BB+'; Outlook Stable;
--Short-term IDR at 'B';
--Long-term local currency IDR at 'BB+'; Outlook Stable;
--Short-term local currency IDR at 'B';
--Viability Rating at 'bb+';
--Support Rating at '3';
--Support Rating Floor at 'BB+'.
National ratings
--Long-term national rating at 'AA+(cri)'; Outlook Stable;
--Short-term national rating at 'F1+(cri)';
--Long-term senior unsecured bonds at 'AA+(cri)'.
Contact:
Primary Analyst
Rene Medrano
Senior Director
+503 2516-6610
Fitch Centroamerica, S.A.
Edificio Plaza Cristal, Tercer Nivel
79 Ave. Sur y Calle Cuscatlan
San Salvador, El Salvador
Secondary Analyst
Rolando Martinez
Associate Director
+503 2516-6619
Committee Chairperson
Theresa Paiz-Fredel
Senior Director
+1-212-908-0534