September 15, 2017 / 6:23 PM / a year ago

Fitch: Potential Deal with Chile's Walmart Unlikely to Affect BCI's Ratings

(The following statement was released by the rating agency) NEW YORK, September 15 (Fitch) According to Fitch Ratings, the announced negotiations by Banco de Credito e Inversiones (BCI) with Walmart Chile (Walmart) to establish either a commercial contract and/or purchase assets is not likely to have an immediate impact on BCI's ratings. If the transaction is completed, Fitch does not anticipate downside rating pressure unless there are material changes in BCI's financial profile and objectives. However, if material negative financial implications and/or event risk arise from a potential deal, upside potential for BCI's ratings could be affected, and an Outlook revision to Stable from Positive cannot be ruled out, particularly in light of more limited room for BCI's upside rating potential given the recent downgrade of Chile's sovereign rating to 'A'. On September 14, BCI announced it is in the initial stages of negotiations with Walmart to establish a potential commercial agreement and/or acquire Walmart's credit card portfolio in order to jointly develop its retail financial business in Chile. Financial terms were not disclosed. This is part of BCI's strategy to strengthen its domestic franchise and consolidate its market share as the third largest provider of consumer loans in Chile. As negotiations are in the initial states, it is not possible to measure the direct impact that a potential transaction would have on BCI's financial profile and key rating metrics, though currently Fitch does not anticipate any material changes given the relatively small size of the transaction. Based on publicly available information, Walmart's credit card portfolio was around USD830 million and represented only 1.9% of BCI`s consolidated earning assets as of June 2017. A potential acquisition of 100% of Walmart's portfolio would increase BCI's market share of consumer loans, and credit cards in particular, closing the gap with the two largest Chilean banks in this segment. This would also allow BCI to improve its core revenues in a more profitable segment. On the other hand, the acquisition of Walmart's credit card portfolio could potentially have a negative impact on BCI's Fitch core capital-to-risk weighted assets ratio (FCC/RWA) depending on the financial terms of agreement, as the transaction would include goodwill and intangibles, and RWA as measured under Chilean regulations would increase to account for unused credit lines. Those factors, individually or collectively, have the potential to erode BCI's current FCC ratio (9.9% as of 2Q17). In addition, the credit card portfolio reported a higher non-performing loan ratio (11.9% as of June 2017) and consolidation under banking rules will require more loan loss reserves. If a commercial contract and/or an asset purchase materializes, Fitch would assess the potential financial and business implications, particularly the deal's impact on asset quality, profitability and capitalization, as further details are available to determine any potential rating implications. BCI's current ratings are as follows: Banco de Credito e Inversiones --Long-Term Foreign and Local Currency IDRs at 'A-'; Outlook Positive; --Viability rating at 'a-'; --Long-term foreign currency senior unsecured at 'A-'; --Long-term National rating at 'AA+(cl)'; Outlook Positive; --National long-term rating senior unsecured bonds at 'AA+(cl)'; --Long-term National rating subordinated bonds at 'AA-'; --Foreign and Local Currency Short-Term IDRs at 'F1'; --Support Rating at '1'; --Support Rating Floor at 'A-'; --Short-term National rating at 'N1+(cl)'; --National equity rating at 'Primera Clase Nivel 1'. 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