May 18, 2017 / 10:21 PM / 10 months ago

Fitch Affirms Banco Internacional del Peru S.A.A. at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, May 18 (Fitch) Fitch Ratings has affirmed Banco Internacional del Peru S.A.A.'s (Interbank) viability rating (VR) and Issuer Default Ratings (IDRs) at 'bbb+' and 'BBB+', respectively. The Outlook remains Stable, reflecting the Stable Outlook on the sovereign and Fitch's expectation for the maintenance of the bank's risk and financial profile over the rating horizon. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT The bank's IDRs are driven by its VR and standalone strength. Interbank's operating environment and company profile highly influence its VR. The Peruvian financial system benefits from a stable economy with a strong track record of sustained growth, but potential GDP growth has declined in recent years. Peruvian banks' increased reliance on the central bank to close dollarization gaps on their balance sheets and provide local currency liquidity has weakened the operating environment to a point that it is no longer the strength that it was in the past relative to the sovereign. Interbank is the fourth largest universal commercial bank in Peru. The bank's ratings also consider its solid financial profile. A sharp decline in growth in 2016, which was in line with the banking system as a whole, negatively affected Interbank's profitability and loan quality metrics while positively impacting its capitalization. Its loan portfolio grew by only 4.6% in 2016 compared to an average of 15.3% during the previous five years, a rate moderately higher than the banking system average. Lower demand for credit, as well as tighter underwriting, particularly in foreign currency, and a pullback in mortgage and SME lending contributed to growth slowdown. In addition, during 2016 the bank made continued progress in reducing loan dollarization to 27.3% of net loans (29.2% at year-end 2015). Past due loans greater than 90 days (PDLs) increased to 2.48% at December 2016 from 2.18% the year prior. Its loan quality indicators are consistently in line or better than the system average, notwithstanding Interbank's greater retail orientation. The increase in PDLs derived primarily from the bank's consumer loan portfolio, particularly credit cards. Loan quality is mitigated by the bank's ample reserve coverage of 179.8% of PDLs. Interbank reported a slight decline in profitability metrics in 2016 due to lower transaction volume, an increase in provisioning and an uptick in funding costs. However, measured against risk weighted assets, its operating profit was largely, stable at 3.2% in 2016 (3.3% annual average from 2012-2015), due to a declining trend in the proportion of risk weighted assets. Fitch expects to see continued downside pressure in profitability in light of the increasing trend in impairment charges. This should be partly offset by continued improvements in operating efficiency. Reduced asset growth and strong internal capital generation benefited the bank's capitalization in 2016. Fitch core capital increased to 11.1% of risk weighted assets at year-end 2016 (9.7% the prior year) and regulatory capital increased to 15.9% from 15.5% during the same period. The bank's capitalization is adequate given excess loan loss reserves as well as USD 198 million in Tier I compliant junior subordinated debt and USD 523 million in Tier II compliant subordinated debt equivalent. Interbank has made significant gains in attracting a stable, retail deposit base, ranking fourth in customer deposits with a market share of 12.7%. Like the financial system as a whole, Interbank's loan de-dollarization has outpaced its deposit de-dollarization. However, the bank maintains liquidity buffers well above the local requirements in both local currency and U.S. dollars. At year-end 2016, the proportion of liquidity to short term obligations was 57% in foreign currency and 29% in local currency, above the system averages and well above the 20% and 8% regulatory minimums. SUPPORT RATING AND SUPPORT RATING FLOOR Interbank's Support Rating and Support Rating Floor reflect Interbank's sizeable market share in deposits, its presence in all business segments, as well as the Republic of Peru's capacity to provide support should it be required. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Interbank's subordinated bonds are plain vanilla. In Fitch's opinion, their probability of non-performance is equivalent to that of Interbank'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. Interbank's junior subordinated bonds, rated four notches below the bank's VR, have 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. RATING SENSITIVITIES VRs, IDRS, AND SENIOR DEBT Given its current rating, there is little upside potential for Interbank's VR and IDRs. Interbank's ratings could be downgraded if a severe decline in asset quality (PDLs above 4%) or weak profitability erode its capital (FCC below 11%) and reserve cushion. SUPPORT RATING AND SUPPORT RATING FLOOR Interbank'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 Interbank's VR. Fitch has affirmed the following ratings: Banco Internacional del Peru S.A.A. (Interbank) --Long-term foreign currency IDR at 'BBB+', Stable Outlook; --Short-term foreign currency IDR at 'F2'; --Long-term local currency IDR at 'BBB+', Stable Outlook; --Short-term local currency IDR at 'F2'; --Viability rating at 'bbb+'; --Support rating at '2'; --Support floor at 'BBB'; --Senior unsecured debt at 'BBB+'; --Subordinated debt at 'BBB'; --Junior subordinated debt at 'BB'. Contact: Primary Analyst Director Mark Narron +1-212-612-7898 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Larisa Arteaga Director +1 809 563-2481 Committee Chairperson Alejandro Garcia Managing Director +1-212-908-9137 Summary of Financial Statement Adjustments: Fitch adjusted Interbank's "Deferred tax assets", deducting generic provisions and re-allocating them to "Other Assets". Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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