Fitch Affirms Bladex's IDR at 'BBB+'; Outlook Stable

Tue Jul 30, 2013 2:02pm EDT

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(The following statement was released by the rating agency) NEW YORK, July 30 (Fitch) Fitch Ratings has affirmed Banco Latinoamericano de Comercio Exterior's (Bladex) Issuer Default Rating (IDR) and Viability Rating (VR) at 'BBB+' and 'bbb+', respectively. A complete list of ratings is provided at the end of this release. Key Rating Drivers Bladex's VR and IDR reflect its expertise in Latin American trade finance, outstanding asset quality, ample and proven liquidity, strong capitalization and moderate profitability. Fitch's view of Bladex's ratings is tempered by its narrow albeit stable margins and its loan and funding concentration. Bladex is rated above the country's Sovereign rating as it has a geographically diversified balance sheet; the bank has proven it can weather a default in one of its key host countries and it has limited risk of having a defaulted government impose restrictions on its debt service. Bladex's support and support rating floor reflect Fitch's view that external support for the bank, though possible, cannot be relied upon. Bladex has developed a unique expertise and franchise since 1975 and consolidated as the top regional foreign trade bank. This expertise is a key competitive factor in a region where trade is rapidly growing. Asset quality improved through 1Q13 as the bank successfully collected its PDLs (PDLs down to 0% of gross loans). Loan loss reserves (LLR) stood at 1.21% of gross loans at the same date. Moreover, Bladex has set aside additional LLR for off-balance sheet credit risk. The total LLR coverage of gross loans and off-balance sheet credit risk stood at 1.25% at 1Q13. In addition to having about 14% of its assets in bank deposits and highly liquid securities, Bladex has a very liquid loan portfolio that rolls over at least twice a year. This proved a key safeguard for the bank as it successfully navigated severe liquidity crunches. Bladex improved its funding structure, relying less on short-term borrowings and closing asset/liability gaps. Though lower than the peak levels of year-end 2009, capital ratios are sound by any standard and likely to remain in the mid-to-high teens, a level considered adequate given Bladex's low-risk business, asset quality, reserves, and risk management policies. The bank's narrow margins and the modest performance of trading and investing activities limit its profitability. Bladex's revenues stalled while operating expenses grew moderately and loan loss provisions put less pressure on the bottom line. Accordingly, efficiency and profitability declined; ROAE stood at about 8% at March 2013 and ROAA was about 1%. Preliminary figures at 2Q13 show an improved performance on higher loan volumes. Bladex's key markets continue to enjoy positive albeit slower growth, fostering loan growth and sound asset quality. Bladex should maintain sound performance through asset growth, resilient margins, contained operating costs, and little provisions pressure thanks to its sound asset quality. Interest margins showed remarkable stability through the crisis but show some erosion as interest rates increase. They reflect the low risk nature of Bladex's business (target market, products) and heighten the need to achieve higher loan volumes to underpin revenues. Given its customer base (major regional banks and corporations), the bank is structurally concentrated on its loan portfolio. By the same token, funding, mainly from central/state-owned and commercial banks, is also concentrated but fairly stable. Bladex may expect some support from its main shareholders (central banks of Latin America), should it be required. However, given the dilution of ownership, support may be difficult to coordinate and cannot, in Fitch's opinion, be relied on. Going forward, Fitch expects that Bladex's Fitch core capital will remain in the 14%-16% range and that profitability will stabilize around 1% (ROAA) with asset quality (PDLs) below 1.5%. Rating Sensitivities More stable revenues and a material reduction in credit and funding concentrations could benefit Bladex's creditworthiness as this could result in lower risk and improved, more consistent profitability. Significantly weaker margins, or important asset quality deterioration that erodes profitability and weakens the capital/reserves cushion beyond Fitch's base case scenarios, could pressure Bladex's ratings downward. Fitch has affirmed the following ratings for Bladex: --Long-term foreign currency IDR at 'BBB+'; Outlook Stable; --Short-term foreign currency IDR at 'F2'; --Viability rating: at 'bbb+'; --Support Rating at '5'; --Support Rating Floor at 'NF'; --Senior unsecured notes at 'BBB+'; --Senior unsecured certificates at 'AAA(mex)'. Contact: Primary Analyst Diego Alcazar Director +1-212-908-0396 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Theresa Paiz-Fredel Senior Director +1-212-908-0534 Committee Chairperson Rene Medrano Senior Director +503-2516-6610 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Aug. 15, 2012); --'National Ratings Criteria' (Nov. 19, 2011); --'Rating Financial Institutions Above the Sovereign' (Dec. 11, 2012). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Ratings Criteria here Rating Financial Institutions Above the Sovereign here Additional Disclosure Solicitation Status 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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