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Fitch Affirms Banco BICE's IDRs at 'BBB+'; Outlook Stable
March 28, 2017 / 1:02 PM / 8 months ago

Fitch Affirms Banco BICE's IDRs at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, March 28 (Fitch) Fitch Ratings has affirmed Chilean Banco BICE's (BICE) Viability Rating (VR) and Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'bbb+' and 'BBB+', respectively, following a peer review of Chilean mid-sized banks. The Rating Outlook is Stable. A complete list of rating actions is provided at the end of this release. KEY RATING DRIVERS VR, IDRs AND NATIONAL RATINGS Banco BICE's (BICE) ratings are driven by its intrinsic creditworthiness, as reflected in its VR, and are highly influenced by the company's small size compared to regional and local peers, market funds concentration, and weaker capital ratios compared to international peers with similar ratings. Fitch also considers the bank's consistent long-term business strategy, which has yielded resilient results across economic cycles. The ratings also factor in BICE's low risk appetite and sound asset quality. Fitch will continue to evaluate the bank's ability to sustain its capitalization and profitability metrics amid a more restrictive operating environment which has moderately affected credit growth and interest margins in the financial system. BICE's capital position is aligned with its earning-generation capacity and history of limited loan losses. Nevertheless, its capital ratio appears limited relative to similarly rated Latin American peers (median FCC/FCC-Adjusted Risk Weighted Assets was 10.6% as of mid-year 2016). However, capital and profitability metrics are affected by the tougher risk-weighting rules in Chile. A moderate RWA growth in the recent past has allowed BICE to increase its FCC/Adjusted RWA ratio to 9.7%. In Fitch's opinion, BICE has demonstrated an adequate ability to balance risks and returns in times of credit stress and volatile financial markets. Recurrent operating income, superior asset quality (loan loss provisions accounted for only 8.3% of earnings before taxes and provisions as of year ended 2016 ), and good cost control has been key to maintaining good operating profit-to-RWA at a 1.7% average for the past five years. The bank has maintained its sound asset quality even in times of greater credit expansion and market volatility. Adequate credit risk tools and the focus on a relatively lower-risk niche (corporate and high net worth segment) have allowed the bank to maintain strong and stable asset quality ratios, with adequate diversification figures in terms of obligors. BICE's historically low past-due loans ratio (non-performing loans rose 0.15% at YE2016, the lowest in Chile and sound compared to international peers), together with limited loan impairment charges, results in strong asset quality ratios. Prudent loan loss reserve policies provide above-average reserve coverage (12.6x on past-due loans) and include a stable portion of counter-cyclical provisions (0.7% of gross loans at YE2016). SUPPORT RATING AND SUPPORT RATING FLOOR BICE's SR and SRF are based on Fitch's view that the entity is a bank for which there is a moderate probability of sovereign support because the limited relative size of the Chilean banking system makes uncertain the propensity of the potential support provider to do so. The potential provider of support, Chile, is highly rated (Long-Term Foreign Currency IDR 'A+'/Negative Outlook) and, in Fitch's opinion, has a moderate likelihood of supporting the bank. SENIOR UNSECURED, SECURED AND SUBORDINATED DEBT BICE's senior unsecured bonds are rated at the same level as its National long-term rating, considering the absence of credit enhancement or subordination feature. Fitch rates BCI's National scale subordinated debt two notches below its National long-term issuer rating. The two-notch difference considers the loss severity due to its subordinated nature (after default), and no additional notching for non-performance risk given the subordinated debt's gone-concern feature (triggered after the point of non-viability). RATING SENSITIVITIES VR, IDRs AND NATIONAL RATINGS The Rating Outlooks for the Long-Term IDRs and National ratings are Stable. A potential rating upgrade is limited mainly by BICE's relatively modest domestic franchise. Fitch does not foresee any changes over the short term provided the bank's earnings remain stable and balanced by business segment, and it maintains its high credit quality. In addition, downward pressure on BICE's VR could result from a deterioration of its capital position, with its FCC ratio falling and remaining below 9%, from either reduced internal capital generation or lower than expected profitability. BICE's VR could also be pressured if operating profit-to-RWA falls and remains below 1%, or if any unexpected risk leads to a deterioration in profitability, capital base or sound asset quality in the medium term. SUPPORT RATING AND SUPPORT RATING FLOOR Changes in the bank's SR and SRF are unlikely. BICE is not considered by Fitch as a domestically important financial institution (D-SIFI) of the Chilean financial system. SENIOR UNSECURED AND SUBORDINATED DEBT BICE's senior and subordinated debt ratings would generally move together with the bank's long-term National rating. The subordinated debt will remain two notches below the bank's National long-term rating. Fitch has affirmed the following ratings: Banco BICE: --Long-Term Foreign and Local currency IDRs at 'BBB+'; Outlook Stable; --Short-Term Foreign and Local currency IDRs at 'F2'; --Viability Rating at 'bbb+'; --Support Rating at '3'; --Support Rating Floor at 'BB+'; --Long-term national rating at 'AA(cl)'; Outlook Stable; --Short-term national rating at 'N1+(cl)'; --National long-term senior unsecured bonds at 'AA(cl)'; --National long-term subordinated bonds at 'A+(cl)'. Bicecorp S.A.: --National long-term rating at 'AA(cl)'; Outlook Stable; --National long-term senior unsecured bonds at 'AA(cl)'; --National long-term commercial paper at 'AA(cl)'; --National short-term commercial paper at 'N1+(cl)'; --National equity rating at 'Primera Clase Nivel 3(cl)'. Contact: Primary Analyst Mark Narron Director +1-212-612-7898 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Abraham Martinez Director +56-2-499-33-17 Committee Chairperson Theresa Paiz Fredel Senior Director +1-212-908-0534 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021198 Solicitation Status here Endorsement Policy here 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 WEB SITE AT WWW.FITCHRATINGS.COM. 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