TEXT-S&P affirms Banco Mercantil Santa Cruz 'BB-/B' ratings

Mon Dec 10, 2012 2:32pm EST

Overview
     -- Bolivia-based Banco Mercantil Santa Cruz has maintained a steady 
growth path and good credit quality despite intense competition. 
     -- We are affirming our 'BB-/B' issuer credit ratings on the bank.  
     -- The stable outlook reflects our expectation that the bank will 
preserve its leading position in the market and expand its activities while 
maintaining asset quality and good liquidity.

Rating Action
On Dec. 10 2012, Standard & Poor's Ratings Services affirmed its 'BB-' 
long-term and 'B' short term issuer credit ratings on Banco Mercantil Santa 
Cruz S.A. (BMSC). The outlook is stable.

Rationale 
The ratings on BMSC reflect its "strong" business position, "weak" capital and 
earnings, "adequate" risk position, "above average" funding, and "adequate" 
liquidity (as our criteria define the terms).

Our bank criteria use our Banking Industry Country Risk Assessment (BICRA) 
economic risk and industry risk scores to determine a bank's anchor, the 
starting point in assigning an issuer credit rating. Our anchor for a 
commercial bank operating in Bolivia is 'bb-'. Our economic risk of '8' 
reflects Bolivia's developing economy, limited economic diversification, and 
tense and fragmented political landscape. Our industry risk of '7' reflects 
Bolivia's banking system regulation, which is more relaxed than international 
standards. Also, we believe that the Bolivian financial system is highly 
exposed to political interference, which could harm the country's business 
environment.
Despite some erosion in its market share, BMSC maintains a leading position in 
the Bolivian financial system, which contributes to our assessment of its 
business position as "strong." With about $2 billion in assets, BMSC is the 
largest among the 12 banks operating in Bolivia in terms of loans and 
deposits, with market shares of about 17% and 18%, respectively, as of 
September 2012. The bank offers a broad range of financial products, with a 
presence throughout the country and all market segments, with special focus in 
corporate and small and medium size enterprises and in mortgages.

We assess BMSC's capital and earnings as "weak." We base this on our view that 
the bank's capitalization has been historically low, with a projected 
risk-adjusted capital (RAC) ratio of below 5% for the next two years. The 
bank's earnings ratios are rather in line with the industry average, given its 
diverse revenue structure and adequate interest margins, despite high 
competition. We will closely monitor the effects of a new law on financial 
institutions and regulations on the sector.

Our risk position assessment for BMSC is "adequate," because of its relatively 
conservative underwriting standards and good management of mismatches. We 
expect BMSC's loan portfolio to perform satisfactorily, as the bank hasn't 
offered new products, served new clients, or entered new market activities 
beyond its traditional area of expertise. The ratio of nonperforming assets 
was about 3.6% as of September 2012, down from 4.6% at the end of 2010, but 
still above the industry average. We expect ratios to continue improving in 
the coming quarters more in line with its peers. We believe that BMSC's risk 
position benefits from focusing its operations (about 66 of BMSC's 75 
branches) on the La Paz-Cochabamba-Santa Cruz area, where approximately 70% of 
the country's GDP is concentrated.

In our opinion, BMSC's funding is "above average" and liquidity "adequate." 
The bank benefits an ample branch network that provides a well-diversified and 
low-cost customer deposit base, which accounts for 97% of the bank's total 
funding base as of September 2012. Deposit base has some concentration, which 
is partly mitigated by the bank's sound franchise value. We consider the bank 
to have adequate liquidity with cash on hand plus liquid securities accounting 
for 35% of its total assets and 41% of total deposits as of September 2012, 
levels that are in line with system average metrics. In addition, the bank has 
available unused committed lines for foreign trade loans for almost $80 
million.

We believe there is a low likelihood of government support, because although 
BMSC is has a high systemic importance in Bolivia, our assessment of Bolivian 
government to provide support is uncertain. The issuer credit rating is 
currently at the same level as the bank's stand-alone credit profile.

Outlook 
The stable outlook reflects our opinion that BMSC will maintain its position 
as the largest bank in Bolivia while it expands its activities with adequate 
liquidity, conservative underwriting standards, and good management of 
mismatches. An upgrade is possible if both the sovereign rating and BICRA of 
Bolivia improve. We could lower the ratings if the bank's business position, 
capitalization, and/or liquidity deteriorates significantly. This could arise 
from a higher-than- projected impact from the new banking law.

Ratings Score Snapshot
Lead Bank Rating              BB-/Stable/B
SACP                          bb-
 Anchor                       bb-
 Business Position            Strong (+1)
 Capital and Earnings         Weak (-1)
 Risk Position                Adequate (0)
 Funding And Liquidity        Average and Adequate (0)

Support                       0
 GRE Support                  0
 Group Support                0
 Sovereign Support            0

Additional Factors            0

Related Criteria And Research 
     -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
     -- Banking Industry Country Risk Assessment Methodology and Assumptions, 
Nov. 9, 2011
     -- Bank Capital Methodology and Assumptions, Dec. 6, 2010

Ratings List
Ratings Affirmed

Banco Mercantil Santa Cruz S.A.
 Counterparty Credit Rating             BB-/Stable/B       
 Certificate Of Deposit                 BB-/B               
              

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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