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Fitch Upgrades Central American Bank for Economic Integration to 'A+'; Outlook Stable
September 7, 2017 / 3:04 PM / 2 months ago

Fitch Upgrades Central American Bank for Economic Integration to 'A+'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, September 07 (Fitch) Fitch Ratings has upgraded Central American Bank for Economic Integration (CABEI)'s Long-term Foreign Currency IDR to 'A+' from 'A'. Fitch has also upgraded the issue ratings on CABEI's senior unsecured foreign currency bonds to 'A+' from 'A' and affirmed CABEI's Short-Term Foreign-Currency IDR at 'F1'. The Rating Outlook on the Long-Term ID is revised to Stable from Positive. Fitch has also affirmed CABEI's National Long-Term, Short-Term and senior unsecured debt ratings. The Outlook for the national ratings is Stable. A full list of rating actions follows at the end of this release. The upgrade of CABEI's IDRs reflects the reduction in notching of Fitch's business environment assessment due to the amendments of CABEI's Constitutive Agreement, which in Fitch's view will help improve capital growth and portfolio diversification. It is also evidence of strong member states' operational support. KEY RATING DRIVERS CABEI's IDRs are based on its intrinsic credit quality. The intrinsic rating reflects the multilateral development bank's (MDB) solvency levels, assessed at 'aa-' due to its excellent capitalization ratio. Fitch's assessment of CABEI's 'high risk' environment (comprising a 'medium-risk' assessment of business profile and 'high-risk' assessment of the operating environment) results in a downward adjustment of one notch to the bank's solvency assessment for an overall intrinsic rating of 'A+'. CABEI's risk profile, assessed as 'low-risk' is a credit strength. Since amending its Constitutive Agreement, CABEI has sustained an excellent capitalisation assessment while increasing loan portfolio diversification by raising its exposure to non-founding countries to a level consistent with Fitch's projections. CABEI has decreased its exposure to private sector loans and has managed to virtually eliminate non-performing loans. Fitch assesses CABEI's solvency as 'aa-', given its 'excellent' and stable capitalisation, its consistent capital generation and moderate loan growth. In the agency's opinion, the MDB will maintain its equity/adjusted-assets ratio above the 25% 'excellent' threshold set out in Fitch Ratings' Supranational Rating Criteria, underpinned by the contributions to capital expected from member countries and the potential adhesion of new members. Fitch deems CABEI's risk profile as 'moderate', owing mainly to the bank's marginal non-performing loans as well as its very low equity and market risk exposures. Fitch's assessment also considers moderate loan book concentration and credit risk of loans and guarantees, projected by Fitch at 'BB+' after the consideration of the strength of CABEI's preferred-creditor status (PCS) and other mitigants. Fitch assessed CABEI's liquidity at 'aaa', reflecting its excellent liquidity buffer, the overall quality of its treasury assets (95.7% rated investment grade at June 2017), and the increasing proportion of high quality liquid assets (62.5% rated AA- or above at June 2017). The bank's liquidity assessment also considers the entity's excellent access to capital markets and alternative sources of liquidity, based on its established presence in 23 markets. Fitch expects the MDB to maintain a high quality of treasury assets in the medium term. Fitch views CABEI's business environment as 'high-risk' in spite of the strong operational support that the bank receives. The MDB's 'medium' business profile risk was not sufficient to offset the 'high risk' of CABEI's operating environment. The agency's 'high risk' assessment for the operating environment reflects the sub-investment grade credit quality of most of the countries of operation. Fitch's assessment of the political risk and business climate in the bank's countries of operations and in the country of the head office is based on the World Bank Governance Indicators and is assessed as 'high risk'. Fitch's assessment for income per capita in CABEI's countries of operations, of 'medium risk', is based on the World Bank Income Group classification, which indicates that most of the countries of operation are ranked middle income per capita. Fitch's assessment of CABEI's business profile at 'medium risk' reflects the MDB's decreasing participation in private sector loans, the consistency of the bank's strategy and the quality of its corporate governance standards, in line with the standards for other sub-regional MDB's. Corporate governance practices are sound and ensure equal treatment for all members of the Central American Integration System (SICA). Fitch believes that CABEI's shareholders have a vested interest in supporting it, should it run into difficulties; however, no credit uplift from support is added to CABEI's intrinsic rating to achieve an overall rating of 'A+', as its outstanding callable capital is insufficient to cover net debt. CABEI's national ratings (national long-term, short-term and senior unsecured debt ratings for Thailand, Mexico, Panama, Costa Rica, Honduras, El Salvador, and the Dominican Republic) reflect that the MDB's Long-Term Foreign Currency Issuer Default Rating is materially above the sovereign ratings for these countries. This places the national ratings at the highest point of the respective national rating scales. RATING SENSITIVITIES The Outlook is Stable. The main factors that could, individually or collectively, lead to negative rating action are as follows: --A material reduction in CABEI's capitalisation metric; --A marked deterioration in the average rating of the loan portfolio or in risk concentration measures. The main factors that could, individually or collectively, lead to positive rating action are as follows: --A marked improvement in the average credit quality of countries of operation; --A material increase in capital. CABEI's issuer and issue rating in national scale in Thailand, Mexico, Panama, Costa Rica, Honduras, El Salvador, and Dominican Republic, are a the highest point on the respective national rating scales; hence, there is no upside. The National ratings could be downgraded in the unlikely scenario that CABEI's IDR falls below any of these sovereigns' ratings. KEY ASSUMPTIONS In its base case scenario, Fitch assumes that: --Member countries, even if experiencing severe difficulties, will continue to honour CABEI's preferred-creditor status and exempt its private-sector borrowers from any measures that may affect the transfer and/or convertibility of their debt service payments; --The average quality of loans will improve in the next three years by the execution of the bank's strategy to broaden its scope to toward countries with higher sovereign ratings, resulting in an the average rating of loans of 'BB-'. Fitch has taken the following rating actions: CABEI --Long-Term IDR upgraded to 'A+' from 'A'; Outlook revised to Stable from Positive; --Issue ratings on long-term senior-unsecured bonds upgraded to 'A+' from 'A'; --Short-Term IDR affirmed at 'F1' --Senior unsecured long-term national debt in Mexico affirmed at 'AAA(mex)'; --Senior unsecured long-term national debt in Panama affirmed at 'AAA(pan)'; --Senior unsecured long-term national debt in Thailand affirmed at 'AAA(tha)'. Banco Centroamericano de Integracion Economica --Long-term national rating in Honduras affirmed at 'AAA(hnd)'; Outlook Stable; --Short-term national rating in Honduras affirmed at 'F1+(hnd)'; Banco Centroamericano de Integracion Economica (El Salvador) --Long-term national rating in El Salvador affirmed at 'AAA(slv)'; Outlook Stable; --Short-term national rating in El Salvador affirmed at 'F1+(slv)'; --Senior unsecured long-term debt in El Salvador affirmed at 'AAA(slv)'; Banco Centroamericano de Integracion Economica (Costa Rica) --Long-term national rating in Costa Rica affirmed at 'AAA(cri)'; Outlook Stable; --Short-term National Rating in Costa Rica affirmed at 'F1+(cri)'; --Senior unsecured long-term debt in Costa Rica affirmed at 'AAA(cri)'; --Senior unsecured short-term debt in Costa Rica affirmed at 'F1+(cri)'; Banco Centroamericano de Integracion Economica (Republica Dominicana) --Long-term National Rating in Dominican Republic affirmed at 'AAA(dom)'; Outlook Stable. --Short-term National Rating in Dominican Republic affirmed at 'F1+(dom)'. Contact: Theresa Paiz-Fredel (Primary Analyst for Central American Bank for Economic Integration, secondary for all others) Senior Director +1-212-908-0534 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Marcela Galicia (Secondary Analyst for Central American Bank for Economic Integration, primary for all others) Director +503 2516-6616 Jindarat Laotaveerungsawat (Lead Analyst for national debt ratings in Thailand) Associate Director +662 108 0153 Patchara Sarayudh (Secondary Analyst for national debt ratings in Thailand) Director +66 2108 0152 Committee Chairperson Eric Paget-blanc Senior Director +33 1 44 29 91 33 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. 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