Fitch Upgrades Banco de Credito del Peru to 'A-'; Outlook Stable

Tue May 27, 2014 4:26pm EDT

Related Topics

(The following statement was released by the rating agency) NEW YORK, May 27 (Fitch) Fitch Ratings has upgraded Banco de Credito del Peru S.A.'s (BCP) viability (VR) and Issuer Default Ratings (IDRs) to 'a-' and 'A-', respectively. A full list of rating actions follows at the end of this press release. KEY RATING DRIVERS VR, IDRs AND SENIOR DEBT Fitch has upgraded BCP's VR and IDRs because the bank has maintained its solid performance and strong balance sheet while achieving a healthy growth amid a quite stable environment. The bank's strong market positioning and track record of performance through the cycle, as well as its sound credit origination and generally cautious approach to business point to the stability of its credit metrics. Based on its strong market positioning and diversification, BCP was able to maintain very strong asset quality with 90-day PDLs below 2% of the gross portfolio for more than five years and reserve coverage above 2 times (x) 90-day PDLs. At the same time, the bank's operating ROAA was consistently above 2%. BCP's, VR IDR and senior debt ratings are driven by its leading franchise; consistent, sound performance; diversified balance sheet and revenues; strong asset quality; adequate capital and reserve cushions; broad, low cost deposit base; positive operating and regulatory environment; ample liquidity; and moderate efficiency. BCP has long had the country's largest branch/ ATM network and customer base. Boasting a dominant franchise, BCP offers a wide array of banking products and has achieved leading market shares in almost all segments. The bank's franchise and strong perception as a safe haven have allowed it to build, maintain, and grow a wide and low-cost deposit base. This is one of the bank's key strengths as it provides stability to its balance sheet and underpins its margins. BCP has a quite liquid balance sheet and robust asset and liability management processes. In addition, the bank has ample access to local and international capital markets which it taps regularly to fund growth and manage its liabilities. BCP is well diversified on both sides of the balance sheet and has a stable, recurrent, diversified revenue stream proper of a leading domestic commercial bank. Future expansion into retail lending, as well as the integration of Mibanco, should further diversify revenues and balance sheet. BCP's core capital continues to compare well with that of its peers (around 10% in the last five years). Sustained profitability and earnings retention underpin BCP's capital which should be viewed in the light of its ample reserve coverage (reserves exceed 90-day PDLs in an amount equivalent to about 15% of Fitch Core Capital), sound profitability, and robust asset quality. Peru's economy shows strong growth momentum based on sound macro fundamentals. In addition, a proactive regulator, eager to take the lead and apply pre-emptive remedies, has created a strong regulatory environment. The Stable Outlook reflects Fitch's belief that the bank's strong balance sheet and performance are resilient to eventual downturns and even though some credit metrics may see a slight deterioration, they are likely to remain compatible with its current rating. SUPPORT RATING AND SUPPORT RATING FLOOR BCP's 30% market share in deposits and its outsize presence in all business segments make it a crucial part of Peru's financial sector. Support from the government should be forthcoming in case of need; Peru's ability to provide such support is reflected in its Sovereign Rating ('BBB+/A-') and underpins BCP's Support and Support Rating Floor ratings; the latter was upgraded to reflect Peru's last sovereign upgrade during 4Q13. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES BCP's subordinated bonds are plain vanilla and lack the features that would earn them equity credit following Fitch's criteria. In Fitch's opinion, their probability of non-performance is equivalent to that of BCP's senior bonds, but they would entail a higher loss in case of default due to their subordinated nature. Hence, they are rated only one notch below the bank's VR. BCP's junior subordinated bonds, rated five notches below the bank's VR, have very strong equity-like features including the non-cumulative deferral of the coupons and a deeper subordination. This notching reflects the incremental non-performance risk relative to that captured by the VR and the loss severity (two notches) given its deeper subordination. BCP EMISIONES LATAM 1 BCP Emisiones Latam 1 (BCPEL1) is a special purpose vehicle incorporated in Chile with the sole purpose of issuing local bonds guaranteed by promissory notes from BCP. Hence, BCPEL1's bond ratings are tied to BCP's VR. The national scale rating of the issuances of this vehicle were upgraded to AA+(cl) aligned with the upgrade of the bank's VR. RATING SENSITIVITIES VR, IDRs AND SENIOR DEBT Sustained Financial Strength: BCP's VR and IDRs are highly correlated with the strength of the Peruvian economy; should the economic environment continue to improve, as is reflected in its sovereign ratings, and the bank maintain a consistent performance and its structural strengths, including a FCC above 12% BCP's ratings could be upgraded. Significantly Weaker Performance: Though not Fitch's base case, BCP's VR and IDRs could suffer if operating environment deterioration materially affects the bank's asset quality and performance to levels worse than the market average, and leads to an erosion of the bank's reserve and capital cushions (FCC below 9.5% and or Operating ROAA below 1%). SUPPORT RATING AND SUPPORT RATING FLOOR BCP's SR and SRF could be affected if Fitch changes its view of Peru's ability or willingness to support the bank. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The Subordinated and Junior Subordinated debt ratings would move in line with BCP's VR. BCP EMISIONES LATAM 1 BCPEL1's bond ratings would move in line with BCP's VR. Fitch has taken the following rating actions on BCP: --Long-term foreign currency IDR upgraded to 'A-' from 'BBB+', Stable Outlook; --Short-term foreign currency IDR upgraded to 'F1' from 'F2'; --Long-term local currency IDR upgraded to 'A-' from 'BBB+', Stable Outlook; --Short-term local currency IDR upgraded to 'F1' from 'F2'; --Viability rating upgraded to 'a-' from 'bbb+'; --Support rating affirmed at'2'; --Support floor revised to 'BBB' from 'BBB-'; --Senior unsecured debt at upgraded to 'A-' from 'BBB+'; --Subordinated debt upgraded to 'BBB+' from 'BBB'; --Junior subordinated debt upgraded to 'BB' from 'BB-'. In addition, Fitch has upgraded the following rating for BCP Emisiones Latam 1 S.A.: --Senior unsecured notes upgraded to 'AA+' from 'AA(cl)'. Contact: Primary Analyst Diego Alcazar Director +1-212-908-0396 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Alejandro Tapia Director +52 81-8399-9156 Committee Chairperson Alejandro Garcia Senior Director +52-81-8399-9146 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' (Jan. 31, 2014); --'Assessing and Rating Bank Subordinated and Hybrid Securities' (Jan. 31, 2014). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria 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.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.