Fitch Affirms Argentina's BBVA Banco Frances's LC IDR at 'B-'; Outlook Negative

Wed Mar 20, 2013 3:08pm EDT

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(The following statement was released by the rating agency) BUENOS AIRES, March 20 (Fitch) Fitch Ratings has affirmed BBVA Banco Frances' (BBVA Frances) Viability Rating (VR) and Local Currency Long-term Issuer Default Ratings (LC LT IDRs) at 'b-' and 'B-', respectively. The Rating Outlook on the LT IDR is Negative. See the full list of ratings actions at the end of this rating action commentary. KEY RATING DRIVERS BBVA Frances benefits from the vast expertise of its largest shareholder Spain's Banco Bilbao Vizcaya Argentaria (BBVA; rated 'BBB+' with a Negative Outlook). However, given the relative high country risk and, in particular, government intervention in the bank business, BBVA Frances' Support rating remains '5' and, hence, its IDRs are driven by its VR. The latter reflects the bank's solid franchise in Argentina, its healthy asset quality, and its satisfactory profitability, liquidity and capitalization, as well as the volatile environment in Argentina. The National LT rating on BBVA Frances' subordinated debt to be issued under its debt issuance program is rated one notch below the bank's national LT rating based on the severity of losses, given that it is going concern 'plain vanilla' subordinated debt. However, it is important to note that there is no outstanding subordinated debt under the program. RATING SENSITIVITIES The Rating Outlook on BBVA Frances's LC LT IDR and LT National rating is Negative, in line with the Outlook on Argentina's Sovereign ratings, which constrains them both. Downside risk to BBVA Frances' ratings mainly stem from a downgrade of the Sovereign rating, or a significant decline in its asset quality, profitability or liquidity, which Fitch considers unlikely in the medium term. Upside to BBVA Frances' ratings currently appears limited but could stem from an upgrade of the Sovereign ratings. CREDIT PROFILE Along with the benign operating environment, BBVA Frances' profitability has steadily improved, based mainly on higher net interest and commission income, which have compensated for the increase in administrative expenses due to the high inflation rate. Fitch expects BBVA Frances' profitability to remain sound, based on its solid revenue generation capacity, although it will probably be under some pressure from slower loan growth, rising inflation and persistent market volatility. BBVA Frances' asset quality is healthy. At Dec. 31, 2012, its non-performing loans (NPLs) accounted for a very low 0.68% of the total, with sound loan loss reserve coverage of 275.0%. Since 2012, banks in Argentina must comply with certain rules regarding compulsory lending that, in Fitch's view, may limit their room to maneuver regarding credit risk management and may result in some pressure on industry asset quality ratios, even though results of such measures are too early to judge. BBVA Frances's funding was comprised primarily of retail deposits. While its liquidity is ample, Fitch is cautious about the large negative maturity mismatch of all banks in Argentina given the short-term nature of their liabilities and the longer tenor on their assets; however, this position appears manageable given BBVA Frances' strong franchise and the complex set of capital controls in place. The bank's capital adequacy is adequate, supported by increased profits and the restrictions imposed by the Central Bank on dividend payments; at Dec. 31, 2012 Fitch Core Capital was 17.33%. Fitch expects BBVA Frances' capitalization to remain at satisfactory levels based on its sound profitability and because loan growth is set to decelerate. Spain's BBVA held 75.96% of BBVA Frances at Dec.31, 2012. Frances was the fourth largest private sector bank by deposits and assets in Argentina and had 273 branches. Fitch has affirmed the following ratings for BBVA Frances: --LC LT Issuer Default Rating (IDR) at 'B-'; Negative Outlook; --Viability Rating at 'b-'; --Support at '5'; --LT National rating at 'AA(arg)'; Negative Outlook; --Short-term National rating at 'A1+(arg)'; --National LT rating on senior unsecured notes and its USD750 million debt issuance program at 'AA(arg)'; Negative Outlook; --National LT rating on the subordinated debt to be issued under its USD750 million debt issuance program at 'AA-(arg)'; Negative Outlook. Contact: Primary Analyst Santiago Gallo Director +54-11-5235-8137 Fitch Argentina Calificadora de Riesgo S.A. Sarmiento 663 - piso 7 - C1041AAM Buenos Aires, Argentina Secondary Analyst Dario Logiodice Associate Director +54-11-5235-8136 Committee Chairperson Franklin Santarelli Managing Director +1-212-908-0739 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Aug. 15, 2012). Applicable Criteria and Related Research Global Financial Institutions Rating Criteria here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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