June 30, 2017 / 8:04 PM / 3 months ago

Fitch Affirms BBVA Colombia at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, June 30 (Fitch) Fitch Ratings has affirmed BBVA Colombia S.A.'s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB+' and Viability Rating (VR) at 'bbb'. The Rating Outlook is Stable. See the full list of rating actions at the end of this release. Fitch has also affirmed the long- and short-term National scale ratings of BBVA Valores Colombia S.A. and BBVA Asset Management S.A. at 'AAA(col)' and 'F1+(col)'. The affirmation of BBVA Colombia's IDRs and National scale ratings for all entities covered in this release reflects Fitch's unchanged view of potential support, if it were needed. The consistency of BBVA Colombia's overall profitability metrics through the cycle, underpinned by its retail banking focus, strong recurring and diversified revenues and sound lending activities, drove the affirmation of the bank's VR. KEY RATING DRIVERS IDRS, NATIONAL RATINGS AND SENIOR DEBT The bank's IDRs, National and senior debt ratings reflect the support it would receive from its parent should it be required. Given its profitability, growth potential, integration with its parent in terms of franchise, business model and management, BBVA Colombia is considered a strategic subsidiary of its parent Banco Bilbao Viscaya Argentaria (BBVA; 'A-'/Stable Outlook) in Latin America. VR The bank's VR is highly influenced by the bank's sound asset quality. BBVA Colombia's rating also considered its strong risk management structure which is fully integrated with that of its parent, stable capitalization metrics and operating environment, sustained profitability and reserve cushions, which are generally in line with other similarly rated entities. BBVA shows one of the best asset-quality metrics compared to that of its local and regional peers. Concentration by industry is very moderate, with participations below 10% of the total loan portfolio, and currently no economic sector is a source of concern for the bank. Amidst economic turmoil, portfolio quality remained stable, non-performing loans (NPLs) increased slightly to 2.1% at March 2017 due to expected asset deterioration, but the ratio compares very well with similarly rated peers. Fitch considers the bank's risk appetite as conservative, supported by its retail focus, collateral requirements, sound risk management, with well-defined systems and procedures. The bank's risk management structure is fully integrated with that of its parent, and it applies all of BBVA's global risk management policies. The risk appetite of the entity follows a global statement, core and specific risk metrics and capital consumption. Despite cyclical deterioration, BBVA Colombia continues to report solid profitability metrics that are in line with its current VR. The bank's operating profitability, as measured by operating profit to risk-weighted assets (RWAs), decreased to 2.0% in recent years (2012-2016 average: 2.46%) due to greater sensitivity of net interest margins to market conditions, its still high dependence on institutional deposits, and decelerating interest income growth. The bank's strong and continuously improving (YE16: 50.8%) operating efficiency ratio (cost-to-income) partially compensated for lower revenues. Operating efficiency compares favorably with other banks in Latin America and underpins the bank's relatively stable operating results over the cycle. Earnings also benefit from BBVA Colombia's retail banking focus. Sustained profitability and a moderate dividend policy support BBVA Colombia's stable capital ratios. The bank's capital is deemed adequate considering its solid asset quality, conservative risk management and good profitability. However, the bank's current capitalization levels compare unfavorably with similarly rated international peers (universal commercial banks in a 'bbb' operating environment), and is considered by Fitch as the main constraint on the bank's VR. Given the importance of the bank in Colombia - both for the regional franchise and for the parent's financial capacity - Fitch believes that the parent organization will provide BBVA Colombia with additional capital should the need arise. BBVA Colombia enjoys a broad and growing customer base that funds 80%-90% of the bank's operations. Deposits come primarily from institutional and public investors, resulting in higher funding costs compared to banks with a wider retail deposit base, and higher depositor concentration (top 20 equalled 37% at YE16). Liquidity risk is carefully monitored, and the bank's liquidity position is ample, according to the parent's strict guidelines which include Basel III guidelines and European regulatory requirements. . SUPPORT RATING The bank's Support Rating (SR) of '2' reflects its role as one of the important subsidiaries of BBVA in Latin America. In Fitch's opinion, BBVA Colombia is strategically important to BBVA's strategy and institutional support should be forthcoming if required. BBVA has a consistent track record of support for its subsidiaries and its ability to support them is illustrated by its 'A-' rating. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES BBVA Colombia's subordinated debt is rated one notch below its IDR to reflect lower expected recoveries, while there is no notching differentiation due to incremental non-performance risk given the terms of the issuances (plain-vanilla subordinated debt) and Fitch believes that parent support can be used effectively to neutralize the non-performance risk of its subsidiary. It has thus been affirmed due to the affirmation of BBVA Colombia's IDR. BBVA VALORES COLOMBIA S.A. and BBVA ASSET MANAGEMENT S.A. NATIONAL RATINGS BBVA Valores and BBVA Asset Management's National ratings reflect the potential support they would receive from their main shareholder, BBBVA Colombia, should it be required. The ratings reflects Fitch's view that the entities are an integral part of BBVA Colombia's business model and core to the strategy of universal banking in Colombia. RATING SENSITIVITIES IDRS, NATIONAL RATINGS AND SENIOR DEBT The bank's IDRs, National and senior debt ratings would change if Fitch's assessment of its parent's ability and/or willingness to support the bank changes. In general, the IDRs would move in line with those of the parent, subject to country ceiling restrictions on the upside, while the VR shows the minimum level at which the IDRs would be if support propensity were to weaken materially, which is not Fitch's baseline scenario. VR Upside potential for the VR is limited given the sovereign's current rating and Outlook, BBVA Colombia's capital levels, and its relatively moderate franchise. The VRs could be pressured by severe asset quality deterioration or a dismal performance that would erode its capital and reserve cushion in a sustained manner (90-day past-due loans above 3.5% and Fitch Core Capital ratio consistently below 9%). SUPPORT RATING BBVA Colombia's SR would be affected by a change in BBVA's ability or willingness to support the bank. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt ratings will mirror any action on the banks IDR. BBVA VALORES COLOMBIA S.A. AND BBVA ASSET MANAGEMENT S.A. NATIONAL RATINGS BBVA Valores and BBVA Asset Management ratings will mirror any action on the bank's National Ratings. Fitch has affirmed the following: BBVA COLOMBIA S.A. --Long-Term Foreign and Local Currency IDRs at 'BBB+'; Stable Outlook; --Short-Term Foreign and Local Currency IDR at 'F2'; --Support Rating at '2'; --Viability Rating at 'bbb'; --Subordinated debt at 'BBB'; --National Long-Term Rating at 'AAA(col)'; Stable Outlook --National Short-Term Rating at 'F1+(col)'; --National senior unsecured debt at 'AAA(col)'; --National Long-Term subordinated debt at 'AAA(col)'. BBVA VALORES COLOMBIA S.A. --National Long-Term Rating at 'AAA(col)'; Stable Outlook; --National Short-Term Rating at 'F1+(col)'. BBVA ASSET MANAGEMENT S.A. --National Long-Term Rating at 'AAA(col)'; Stable Outlook; --National Short-Term Rating at 'F1+(col)'. Contact: Primary Analyst Theresa Paiz-Fredel (BBVA Colombia) Senior Director +1-212-908-0534 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Andres Marquez (BBVA Asset Management) Secondary Analyst (BBVA Valores) Director +57 1 484 6770 Ext 1220 Jairo Espejo (BBVA Valores Colombia) Secondary Analyst (BBVA Asset Management) Analyst +57 1-484 6770 Ext 1980 Secondary Analyst Sergio Pena (BBVA Colombia) Associate Director +57-1-484 6770 Committee Chairperson Alejandro Garcia Managing Director +1-212-908-9137 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. 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