April 20, 2017 / 9:36 PM / in 9 months

Fitch Downgrades Salvadorian Banks after Sovereign Action; Outlook Revised to Stable

(The following statement was released by the rating agency) MONTERREY, April 20 (Fitch) Fitch Ratings has downgraded the Long-Term Issuer Default Ratings of Banco Agricola, S. A. (Agricola) and Banco Davivienda Salvadoreno, S.A. (Davivienda Sal) to 'B-' from 'BB-'. The Rating Outlooks have been revised to Stable from Negative. Fitch has also downgraded both banks' Viability Rating (VR) to 'ccc' from 'b', affirmed their Short-Term IDRs at 'B' and downgraded their Support Ratings to '5' from '3'. A full list of rating actions follows at the end of this press release. Fitch's actions follow the downgrade of El Salvador's sovereign Long-term Foreign Currency Issuer Default Rating (IDR) to 'CCC' from 'B', Long-term Local Currency IDR to 'RD' from 'B', Country Ceiling to 'B-' from 'BB-' and the Short-Term Local and Foreign Currency IDRs to 'C' from 'B'. (See 'Fitch Downgrades El Salvador's Long-Term Local Currency IDR to 'RD'' at 'www.fitchratings.com'). KEY RATING DRIVERS IDRS AND SUPPORT RATINGS (SRs) The IDRs and SRs of Agricola and Davivienda Sal reflect the potential support from their respective shareholders, Bancolombia, S.A. (Bancolombia; Long-Term IDR 'BBB'/Outlook Negative) and Banco Davivienda, S.A. (Davivienda; 'bbb'/'BBB'/Outlook Negative); however the IDRs are constrained at El Salvador's Country Ceiling of 'B-'. Fitch believes that the owner's commitment to their subsidiaries are sufficiently strong to allow them to be rated above the sovereign rating. The low level of the latter also constrains the SRs of these banks, which have been revised to '5'. According to Fitch's criteria where country risks are high, subsidiary ratings may be capped at levels significantly below those which would be possible based on the parent's ability and propensity to provide support. Fitch's opinion regarding the ability and propensity of Agricola and Davivienda Sal respective parents reflects the high reputational risks for their parents in the event of subsidiary default and that any required support would be manageable relative to ability of their respective parent's to provide it. VR Despite maintaining relatively sound credit attributes, Agricola's and Davivienda Sal's VRs are constrained by the El Salvador's sovereign rating, given their significant exposure to the financial health of the government. Fitch usually does not rate banks above the sovereign, especially in such a high level of sovereign credit risk. Therefore, the weak operating environment has currently a high influence on these banks' VRs. Further deterioration of the operating environment may impact their asset quality and their funding and liquidity profile. Agricola's VR is moderately influenced by its good quality of its loan book, high profitability, sound capital position and solid deposit based funding profile. Davivienda's VR is moderately influenced by its modest profitability, aligned with industry average, sound but decreasing capital position, and adequate asset quality. Davivienda's funding profile is robust, also underpinned by a large and granular deposit base. AGRICOLA SENIOR TRUST'S LOAN PARTICIPATION NOTES The loan under the Senior Unsecured Loan Agreement ranks pari passu in right of payment to all of Agricola's existing and future senior indebtedness and is effectively subordinated to all of the bank's secured indebtedness with respect to the value of the assets securing such indebtedness and to all of the existing and future liabilities of its subsidiaries. It has thus been downgraded due to the downgrade of Agricola's IDR at the same level as the latter. RATING SENSITIVITIES IDRs and VRs Agricola's and Davivienda Sal's ratings remain sensitive to a change in the El Salvador Sovereign Rating and Country Ceiling. Changes in the banks' IDR would mirror changes in El Salvador country ceiling; in turn, changes in El Salvador Sovereign Rating would also impact the bank's VRs. SRs Support ratings could be upgraded in a scenario of an important enhancement of the operating environment that conducts a change in Fitch's assessment on Bancolombia's and Davivienda's propensity to provide support to their respective subsidiaries in El Salvador. Fitch has taken the following rating actions: Banco Agricola, S.A. --Long-Term IDR downgraded to 'B-' from 'BB-'; Outlook revised to Stable from Negative; --Short-Term IDR affirmed at 'B'; --Viability Rating downgraded to 'ccc' from 'b'; --Support Rating downgraded to '5' from '3'. Agricola Senior Trust --Loan participation notes downgraded to 'B-/RR4' from 'BB-'. Davivienda Salvadoreno, S.A. --Long-Term IDR downgraded to 'B-' from 'BB-'; Outlook revised to Stable from Negative; --Short-Term IDR affirmed at 'B'; --Viability Rating downgraded to 'ccc' from 'b'; --Support Rating downgraded to '5' from '3'. Contact: Primary Analyst Monica Ibarra Director +52 (81) 8399-9150 Fitch Mexico, S.A. de C.V. Prol. Alfonso Reyes 2612 Monterrey, N.L. Mexico Secondary Analysts Marcela Galicia (Agricola) Director +503 2516 6616 Mario Hernandez (Davivienda Sal) Associate Director +503 2516 6614 Committee Chairperson Alejandro Garcia, CFA Managing Director +1-212-908-9137 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Summary of Financial Statement Adjustments: Pre-paid expenses were re-classified as intangibles and deducted from Fitch Core Capital. 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