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Fitch Reviews Large Peruvian Banks
May 27, 2014 / 8:26 PM / 4 years ago

Fitch Reviews Large Peruvian Banks

(The following statement was released by the rating agency) NEW YORK, May 27 (Fitch) Fitch Ratings has completed its review of Peru's four largest banks and their related entities. As a result of the review, the Viability Ratings (VRs) and Issuer Default Ratings (IDRs) of Banco de Credito del Peru (BCP), BBVA Banco Continental (BC) and Banco Internacional del Peru (Interbank) have been upgraded while the ratings of Scotiabank Peru (SBP) were affirmed. The rating actions are summarized at the end of this press release. The banks covered in this review comprised about 84% of Peru's banking system's assets at YE13; their business volumes - largely concentrated in Peru - ranked between USD35 billion and USD10.6 billion at the same date. Besides the individual factors detailed below, the upgrades considered the positive economic and regulatory environment, GDP growth prospects and positive trends in terms of employment and GDP per capita. For more details on each individual bank and its affiliates' rating drivers and sensitivities, please refer to the respective press release published along with this one. KEY RATING DRIVERS VR, IDRs AND SENIOR DEBT BCP BCP's, VR and IDRs were upgraded as the bank 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. BC The upgrade of BC's, VR and IDRs is driven by the bank's consistently solid performance; sustained, healthy growth that contributes to strengthen its balance sheet. BC's cautious approach to business and track record of adequate risk management underpin its credit metrics and provide stability amid a benign operating environment. BC boasts one of the highest efficiency levels in the region with operating expenses consuming just 35%-37% of operating revenues in the last few years and 90-day PDL levels below 2% of gross loans for more than five years with reserve coverage of about 3x 90-day PDLs. BC's viability rating and Issuer Default Ratings reflect its robust franchise; solid performance; strong profitability; high efficiency; solid asset quality and ample reserves; wide and low cost deposit base and adequate capital. Interbank Interbank's VR and IDR were upgraded considering that the bank has maintained its strong performance; sound underwriting policies and risk management tools and consistent, good asset quality while growing its franchise in a healthy, balanced manner. In the past few years, Interbank achieved leading positions in retail lending while containing 90-day PDLs below 2% of gross loans. The bank's well contained credit cost bolstered operating ROAA above 3% for more than five years. Interbank's VR and IDR ratings are driven by its consistent, strong performance; robust credit process; good asset quality; sound franchise; adequate capital; positive economic and regulatory environment; and improving funding base. The ratings also consider the fierce competition the bank faces and its business model that leads to more concentration in the retail segment. SBP SBP is considered a strategic subsidiary of the Bank of Nova Scotia (BNS, rated 'AA-'/Stable by Fitch Ratings). Hence, in Fitch's opinion, there is a high probability that SBP would receive support from its parent, should it be required, provided that SBP does not suffer from a systemic risk event. BNS's potential support underpins SBP's IDRs and support rating. SBP's, VR rating is driven by its sound capital; ample margin and consistent performance; robust asset quality and reserves; strengthened franchise; improved funding structure and cost; positive operating and regulatory environment and heightened competition. SUPPORT RATING AND SUPPORT RATING FLOOR Peru's ability to provide support to these banks is reflected in its Sovereign Rating ('BBB+/A-') and underpins their Support and Support Rating Floor ratings; the latter were upgraded to reflect Peru's last sovereign upgrade during 4Q13. BCP 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. BC BC's 22% market share in deposits and its strong presence in all business segments make it a key player in Peru's financial sector. Support from the government should be forthcoming in case of need. Interbank Interbank has an 11.5% market share in deposits and a sizable presence in all business segments. Support from the government should be forthcoming in case of need. RATING SENSITIVITIES VR, IDRs AND SENIOR DEBT BCP 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%). BC Sustained Performance and Balance Sheet Strength: BC's VR and LC IDR could be upgraded if the bank is able to maintain its balance sheet strength and performance while improving its capitalization (FCC above 12%). In addition, its BC's IDR could benefit from a significant improvement of its parent's ability to provide support, as evidenced by BBVA's IDR. Significant Deterioration of its Performance: BC's VR and IDRs would be pressured by a sharp deterioration of the bank's performance or a larger than expected decline in asset quality that would erode the capital/ reserves cushion (90-day PDLs above 3% and FCC consistently below 9.5%). SBP Sovereign Upgrade: SBP's foreign currency IDR would be upgraded should Peru's sovereign rating and country ceiling be upgraded. Downward risk for the bank's IDRs is limited given its parent support but the IDRs could also change if Fitch's assessment of BNS's ability or willingness to support SBP changes. SBP's VR could be upgraded if the bank maintains good asset quality and a solid performance amid a stable environment as evidenced by the sovereign rating. On the other hand, should asset quality deteriorate (90-day PDLs above 3.5%) or profitability sharply decline (operating ROAA below 2%), its VR would be pressured downwards. Interbank Given its current rating, there is little upside potential for Interbank's VR and IDRs. On the other hand, Interbank's ratings could be downgraded if a severe decline in asset quality (PDLs above 4%) or weak profitability erode its capital (FCC below 9%) and reserve cushion. SUPPORT RATING AND SUPPORT RATING FLOOR BCP, BC AND Interbank SRs and SRFs could be affected if Fitch changes its view of Peru's ability or willingness to support these banks. Fitch has taken the following rating actions: Banco de Credito del Peru --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)'. BBVA Banco Continental --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+'; Continental Trustees (Cayman) Ltd. --Senior secured junior subordinated loan participation notes upgraded to 'BB+' from 'BB'. Continental Senior Trustees (Cayman) Ltd --Senior secured loan participation notes upgraded to 'A-' from 'BBB+'. Continental Senior Trustees II (Cayman) Ltd. --Senior secured loan participation notes upgraded to 'A-' from 'BBB+'. Scotiabank Peru --Long-term foreign currency IDR at 'A-'; Outlook Stable; --Short-term foreign currency IDR at 'F1'; --Long-term local currency IDR at 'A+'; Outlook Stable; --Short-term local currency IDR at 'F1'; --Support rating at '1'; --Subordinated debt at 'A-'; --Viability rating at 'bbb+'. Banco Internacional del Peru --Long-term foreign currency IDR upgraded to 'BBB+' from 'BBB', Stable Outlook; --Short-term foreign currency IDR affirmed at 'F2' ; --Long-term local currency IDR upgraded to 'BBB+' from 'BBB', Stable Outlook; --Short-term local currency IDR affirmed at 'F2'; --Viability rating upgraded to 'bbb+' from 'bbb'; --Support rating upgraded to '2' from '3'; --Support floor revised to 'BBB' from 'BB+'; --Senior unsecured debt upgraded to 'BBB+' from 'BBB'; --Subordinated debt upgraded to 'BBB' from 'BBB-'; --Junior subordinated debt at upgraded to 'BB' from 'BB-'. Contact: Primary Analyst Diego Alcazar (BCP, BC, Interbank and SBP) Director +1-212-908-0396 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analysts Alejandro Tapia (BCP, BC) Director +52 81-8399-9156 Larisa Arteaga (SBP) Director +1-809-563-2481 Veronica Chau (Interbank) Director +52 81-8399-9100 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); --'Rating Financial Institutions Above the Sovereign' (Dec. 11, 2012); --'Rating FI Subsidiaries and Holding companies' (Aug.10, 2012). 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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