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

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
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