Fitch Affirms Ratings of Four Private Sector Venezuelan Banks

Fri Jan 24, 2014 5:14pm EST

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(The following statement was released by the rating agency) NEW YORK, January 24 (Fitch) Fitch Ratings has affirmed the ratings of four private sector Venezuelan banks, including: --Banesco, Banco Universal, CA (BBU); --Banco Provincial, S.A., Banco Universal (Provincial); --Mercantil, C.A. Banco Universal (Mercantil); --Banco del Caribe, C.A. Banco Universal (Bancaribe). A full list of rating actions follows at the end of this press release. The banks included in this peer review have assets between USD10 billion and USD33 billion with operations primarily in Venezuela. All of these banks’ Viability Ratings (VRs), or standalone intrinsic financial strengths, drive their IDRs and do not take into account either institutional or state support. Solid asset quality and profitability (not adjusted for inflation) indicators, in part due to high nominal credit growth support their VRs. While liquidity profiles are sufficient for the local market, a high proportion of the banks’ liquid holdings are in Venezuelan public sector instruments. Furthermore, all of these banks have a large negative mismatch between short-term assets and liabilities as is common to Venezuelan banks more generally. However, this position is manageable under Venezuela’s current scheme of foreign exchange controls. Fitch expects some deterioration in these banks’ financial profiles during 2014 due to the Venezuelan operating environment’s inherent risks as a result of severe macroeconomic imbalances, as well as a seasoning of credit portfolios. However, absent a material increase of government intervention in the banking sector or a severe macroeconomic adjustment, financial metrics should remain well within the norm of similarly rated peers (emerging market commercial/universal banks with a ‘b’ category VR). The rating actions below follow a periodic review of these four banks. Fitch will publish the main findings of this review in a report ‘Peer Review: Private Sector Venezuelan Banks’, which will be available at www.fitchratings.com. Fitch concludes that the largest private sector Venezuelan banks will remain more resilient than the rest of the system in the event of stress. KEY RATING DRIVERS – IDRS, VRS AND NATIONAL RATINGS BBU BBU’s ratings balance its solid profitability and asset quality indicators, as well as its adequate liquidity against its weaker capitalization ratios relative to domestic and international peers. The ratings also take into account the government’s persistent intervention in the banking sector and Venezuela’s inherent economic and operational volatility. BBU is the main subsidiary of Banesco Holding, S.A. PROVINCIAL Provincial’s ratings reflect its strong franchise and financial profile compared with both domestic and international peers. The ratings also incorporate the bank’s conservative risk management and operational support from Spain’s Banco Bilbao Vizcaya Argentaria (BBVA). Despite the bank’s robust profitability, asset quality and capital position, 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’s majority shareholder is BBVA, which has a 55% stake in the bank. MERCANTIL Mercantil's ratings reflect its strong performance, manageable liquidity risk and resilient credit risk profile. The strength of its balance sheet, management’s experience in dealing with the inherently volatile operating environment in Venezuela and its ample market share and strong franchise allow the bank to maintain a relatively stable deposit base. The ratings also take into account the bank's healthy asset quality and adequate capitalization, both of them in line with other domestic (universal) banks and comparing favorably to international peers. On the other hand, Mercantil's ratings are also constrained by the sovereign. Mercantil is the largest subsidiary of Mercantil Servicios Financieros. CARIBE Bancaribe's ratings are consequence of its resilient performance, stable asset quality and adequate liquidity risk. It also incorporates a strengthening of capital ratios in 2013, after being pressured by high nominal asset growth in recent years. The ratings also take into account the government’s persistent intervention in the banking sector and Venezuela’s inherent economic and operational volatility. Scotiabank has a minority stake of 27% in Bancaribe. RATING SENSITIVITIES – IDRS, VRS AND NATIONAL RATINGS Government intervention that pressures financial performance of these banks could negatively affect the banks’ IDRs, VRs and National ratings. A sustained deterioration in profitability or asset quality that pressures capitalization ratios could also be negative for their ratings. Additionally, a downgrade of the sovereign’s IDRs would result in a similar action on the ratings of Provincial and Mercantil, which are currently capped at the sovereign. There is no upside potential to any of the banks’ international ratings in the near term as the sovereign currently has a Negative Rating Outlook. KEY RATING DRIVERS AND SENSITIVITIES – SUPPORT RATING AND SUPPORT RATING FLOOR The banks’ Support Rating (SR) of ‘5’ and Support Rating Floor (SRF) of ‘NF’ reflect Fitch’s expectation of no support. Despite these banks’ systemic importance, support cannot be relied upon given Venezuela’s speculative grade rating and lack of a consistent policy on bank support. Government interference in the banking system could also negatively influence shareholder support if these banks were to require financial assistance. Venezuela’s propensity or ability of to provide timely support to these banks is not likely to change given the sovereign’s low speculative grade ratings. As such, the SR and SRF have no upgrade potential, particularly as the sovereign has a Negative Outlook. Fitch has affirmed the following ratings: BBU --Long-term foreign and local currency IDRs at ‘B'; Outlook Stable; --Short-term foreign and local currency ratings at ‘B'; --Viability at ‘b'; --Support at 5; --Support Floor at NF; --Long-term national-scale rating at ‘A+(ven)'; --Short-term national-scale rating at 'F1(ven)'. Provincial --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 at NF; --Long-term national-scale rating at ‘AA+(ven)'; --Short-term national-scale rating at ‘F1+(ven)'. Mercantil --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 at NF; --Long-term national-scale rating at ‘AA+(ven)'; --Short-term national-scale rating at ‘F1+(ven)'. Caribe --Long-term foreign and local currency IDRs at ‘B'; Outlook Stable; --Short-term foreign and local currency ratings at ‘B'; --Viability at ‘b'; --Support at 5; --Support Floor at NF; --Long-term national-scale rating at ‘A+(ven)'; --Short-term national-scale rating at ‘F1(ven)'. Contact: Primary Analyst Theresa Paiz Fredel Senior Director +1-212-908-0534 Fitch Ratings, Inc. One State St. Plaza New York, NY 10004 Secondary Analyst Andres Marquez Director +571 326 9999, Ext. 1220 Committee Chairperson Alejandro Garcia Senior Director +52 818 8399 9146 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria and Related Research: --‘Global Financial Institutions Rating Criteria’ (Aug. 15, 2012); --‘National Scale Rating Criteria’ (Oct. 30, 2013); --‘2014 Outlook: Andean Banks’ (Dec. 16, 2013). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here 2014 Outlook. Andean Banks (Colombia, Ecuador, Peru and Venezuela) 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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