TEXT - Fitch affirms Banco Provincial ratings

Wed Feb 13, 2013 4:38pm EST

(The following statement was released by the rating agency)
    Feb 13 - Fitch Ratings has affirmed Venezuela-based Banco Provincial's
(Provincial) long-term Issuer Default Rating (IDR) at 'B+' with a Negative
Rating Outlook. A full list of Provincial's rating actions follows at the end of
this press release.

RATING ACTION RATIONALE

Provincial's financial profile, as reflected in its Viability Rating (VR), 
drives the bank's long-term IDR. Provincial's IDRs are at the same level as 
Fitch's Sovereign ratings for Venezuela (foreign and local currency IDRs 'B+'; 
Outlook Negative).

Fitch has affirmed Provincial's VR and IDRs as the bank remains well positioned 
to deliver strong financial results (even when adjusting for inflation) despite 
the high degree of government intervention in the banking business. In Fitch's 
opinion, strong risk policies bolstered by Provincial's largest shareholder, 
Spain's Banco Bilbao Vizcaya Argentaria (BBVA), combined with the bank's vast 
knowledge of the Venezuelan market will continue to underpin the resilience of 
the bank's solid credit profile, even with the expected weakening of the 
operating environment this year.

 

Fitch believes that the shareholders' willingness to provide support should it 
be required is possible, though it cannot be relied upon due to the governments 
interference with the banking system, which is what results in Provincial's 
Support rating of '5'. Despite Provincial's systemic importance, its support 
floor of 'No Floor' (NF) reflects Venezuela's speculative-grade rating, and the 
government's limited willingness and capacity to provide support.

SENSITIVITIES/RATING DRIVERS - IDRS, VR, AND NATIONAL RATINGS

Provincial's ratings reflect its strong franchise and financial profile. The 
ratings also incorporate the bank's conservative risk management and operational
support from BBVA. Despite the bank's strong credit profile, the ratings are 
constrained by the sovereign due to the negative effects of government control 
over the financial sector and the broader economy (reflected in Venezuela's 
'B+'; Negative Outlook).

Provincial continues to be one of the most profitable private sector banks in 
Venezuela due to its stable and ample net interest margin, controlled credit 
costs and better efficiency. The bank's ROAA ratio reached a historic peak of 
5.85% (not adjusted for inflation) at year-end 2012, comparing favorably to both
domestic (private sector universal banks) and international (emerging market 
commercial banks with a VR of 'b-/b/b+') peers.  Given the recent currency 
devaluation, Fitch expects lower credit growth, as well as higher credit costs 
and operational expenses to pressure earnings in 2013. Nevertheless, Provincial 
is likely to maintain its strong financial performance relative to peers, even 
on an inflation-adjusted basis.

Low impaired loans and charge-offs and ample loan loss reserve coverage 
continues to support the bank's stellar asset quality relative to peers. The 
bank's loan portfolio is adequately diversified given its leading position in 
most business segments. Although Fitch expects asset quality to deteriorate in 
the short term due to the challenging economic environment, Provincial's 
indicators should remain among the best relative to domestic and international 
peers.

Access to ample retail funding is a key strength of the bank in terms of funding
costs and liquidity management as well as a tool to leverage its growth through 
cross-selling from its vast customer base. Excess liquidity continued to drive 
robust deposit growth in 2012, reducing Provincial's loans/customer deposits 
ratio to 59% at year-end. Fitch expects the bank's loan portfolio to remain 
fully funded by deposits over the medium term.

Moderate cash dividends limited by local regulation and high profits sustained 
Provincial's equity growth at almost the same level as asset growth. As a 
result, the bank's Fitch core capital/adjusted weighted risks ratio decreased 
only slightly to 17.2% at YE2012 from 17.5% at YE2011.  Nevertheless, 
Provincial's capitalization still compares favorably to both domestic and 
international peers, a trend Fitch expects to continue in 2013. 

SENSITIVITIES/RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

There is limited upside to the bank's Support rating and Support Floor over the 
medium term given the sovereign's current ratings and Outlooks and the 
government's propensity to intervene in the banking business and overall private
sector activities.

Provincial is Venezuela's third largest bank, with a 12.2% market share in terms
of total assets at Dec. 31, 2012. Spain's BBVA controls about 55.2% of 
Provincial's equity and Grupo Polar is the second largest shareholder with a 
26.5% stake.

Fitch has affirmed the following ratings:
--Long-term foreign and local currency IDRs at 'B+'; Outlook Negative;
--Short-term foreign and local currency ratings at 'B'; 
--Viability at 'b+';
--Support at 5;
--Support Floor NF; 
--Long-term national-scale rating at 'AA+(ven)'; 
--Short-term national-scale rating at 'F1+(ven)'.

 (Caryn Trokie, New York Ratings Unit)
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