January 22, 2013 / 6:27 PM / 5 years ago

TEXT - Fitch affirms Guatemalan Banco de Desarrollo Rural ratings

(The following statement was released by the rating agency)
    Jan 22 - Fitch Ratings has affirmed the Guatemalan Banco de Desarrollo
Rural's (Banrural) long-term Issuer Default Rating (IDR) at 'BB+'. 
The Rating Outlook is Stable. A full list of rating actions follows at the end 
of this press release.

KEY RATING DRIVERS

Banrural's IDRs and Viability Rating (VR) reflect its sound local franchise, 
historically high profitability, strong capital, good credit quality and ample 
depository base. Banrural's ratings also reflect moderate concentrations in 
public sector funds and the limited revenue diversification, given its main 
target markets (micro, and small enterprises). 

Banrural has exhibited a consistently high profitability over the past years. 
The bank's return on assets and equity during 2012 (2.5% and 23.7%, 
respectively) was boosted by its ample net interest margin (8%), which balances 
the weak efficiency (5% of average assets) derived from its business model and 
ample network of services. Fitch foresees that Banrural's strong profitability 
will continue comparing positively with the local banking system and similarly 
rated international peers.

Banrural's good capital levels continue comparing positively with its main local
peers and similarly rated international banks. Fitch Core Capital to 
risk-weighted assets stood at a high 16.1%, well above the Guatemalan banking 
systems capitalization. Banrural's capitalization will continue benefiting from 
the moderate dividends distribution practice. 

Banrural's funding benefits from an ample depository base which has been growing
at double-digits since 2010. This strength is reflected in the bank's capacity 
to have financed 1.3 times the gross loans over the past five years through this
mean. The high weight of low-cost saving and current account deposits (around 
70% on total deposits over the past five years) have favored the bank's funding 
costs. However, the bank maintains a moderate concentration in its 20 largest 
depositors and in the public sector.

Banrural's delinquency metrics have been below 1% over the past years, at the 
same time, the reserve coverage for nonperforming and gross loans has gradually 
improved, reaching up to 328.5% and 2.3% in 2012, respectively. Overall, loan 
portfolio concentration in the largest economic debtors is low, as is the 
entity's foreign currency exposure and level of non-domiciliated loans. Although
restructured loans remain relatively high (2012: 6.9% of gross loans), they have
declined from their peak (2010: 8%).

WHAT COULD TRIGGER A RATING ACTION

Banrural's Stable Outlook reflects that Fitch does not anticipate substantial 
changes in the bank's risk profile in the foreseeable future. Banrural's upside 
potential is considered limited and, at this point, constrained by the sovereign
rating, given its association with the public sector. However, Banrural's rating
could be upgraded should it significantly reduces the weight of public sector 
deposits, which accounts approximately 23% of total deposits, while maintaining 
a strong Fitch Core Capital. On the other hand, a significant and unexpected 
reduction of the bank's Fitch Core Capital Ratio (below 11%) and a period of 
sustained low earnings (Operating ROAA close to 1%) would trigger a negative 
rating action.

CREDIT PROFILE

Established in Guatemala in 1998, Banrural focus its services in promoting 
economic and social development in rural areas of the country. The bank is 
mainly oriented to finance consumption, as well as micro, small and medium 
companies, with a smaller share in corporate loans. Banrural is currently the 
third largest bank in Guatemala in terms of assets (2012: 19.7% of the system's 
assets), the second in deposits (21.6% of total deposits) and loans (22.1% of 
gross loans), but the largest in net profits (29.2%).

Fitch has affirmed the following rating on Banrural:

--Long-term foreign currency IDR at 'BB+'; Outlook Stable;
--Short-term foreign currency IDR at 'B';
--Long-term local currency IDR at 'BB+'; Outlook Stable;
--Short-term local currency IDR at 'B';
--Viability rating at 'bb+';
--Support at '3';
--Support Rating Floor at 'BB-';
--National long -term rating at 'AA+(gtm)'; Outlook Stable;
--National scale short-term rating at 'F1+(gtm)'.

 (Caryn Trokie, New York Ratings Unit)

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