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Fitch Affirms Banco Internacional de Costa Rica at 'BB'; Outlook Stable
April 25, 2017 / 9:57 PM / in 8 months

Fitch Affirms Banco Internacional de Costa Rica at 'BB'; Outlook Stable

(The following statement was released by the rating agency) MONTERREY, April 25 (Fitch) Fitch Ratings has affirmed Banco Internacional de Costa Rica, S.A.'s (BICSA) long- and short-term foreign currency Issuer Default Ratings (IDRs) at 'BB' and 'B', respectively. The Viability Rating (VR) was affirmed at 'b+'. The Rating Outlook of the long-term ratings is Stable. A full list of rating actions follows at the end of this press release. KEY RATING DRIVERS IDRS, SUPPORT AND NATIONAL RATINGS BICSA's IDRS, support and national ratings are driven by the support it would receive, if necessary, from its ultimate parent, Banco de Costa Rica (BRC; 'BB'/Outlook Stable). Fitch believes that BICSA is core to its parent given the significant role the bank represents to its owners objectives and the shared reputational risk given their integration; therefore the ratings are equalised. This was proven in 2016 when BICSA received support from its shareholders to face liquidity concerns at the time. The affirmation of the bank's Support Rating reflects Fitch's view that the probability of support remains unchanged. VR BICSA's VR reflects the high exposure it has to a weaker economic environment (Costa Rica) and that has been translated in a mild deterioration in impairment loans that has added some pressure to its profits. Also, the bank faces tough challenges to improve its depositor's diversification, which is its main funding source, and the deposit base has proven to be less stable given the institutional profile of most of its clients. The rating also takes into account the adequate capital metrics that have remained stable over the years. In Fitch's perspective 2016 was a challenging year for the bank, as they faced several reputational risk pressures that translated in a deposit run of about 10% of its total deposits. The bank focused on this issue adopting some strategies such as increasing the share of highly-liquid assets while reducing the proportion of loans, and they also received support from its shareholders through the selling of some assets (loans portfolio). The liquidity pressures forced the bank to diminish its loans portfolio, which along with a mild deterioration of impairment loans and higher funding costs resulted in a drop in profits. In 2016YE the operating income to Risk Weighted Assets (RWAs) ratio fell to 0.6% from an average of 1.5% in 2013-2015. Fitch believes that these levels are modest and weaker compared to its peers. Fitch believes that BICSA's asset quality is reasonable. While non-performing loans (NPLs) ratio is relatively low, the asset quality is pressured by recurrent charge offs and high concentrations per borrower. In 2013-2015, in average, the NPLs ratio stood at 1%, similar to its peers. This ratio deteriorated to 1.9% by 2016YE, on the back of certain loans that became overdue; the reduced total loans portfolio also had an effect on the higher NPL ratio. Around 90% of the impaired loans are attributed to Costa Rican clients. By 2016YE, the top 20 debtors accounted for around 1.9x its Fitch Core Capital (FCC), which is higher than its peers. In Fitch's view, the bank relies on customer deposits as its main funding source which accounts for nearly 50% of total funding; other sources include banking lines and market debt, which adds to the bank's funding diversification. The agency thinks that deposits are highly concentrated as the bank's top 20 clients account for 65% of total deposits (around 30% of total funding). At 2016YE the loans to deposits ratio stood at a high 193.5% (2013-2015 average: 199%), a level that Fitch considers weak. Most of its depositors are institutional clients, who are inherently less stable than general public clients, as was proven in 2016. Positively, the bank doesn't show mismatches in its liquid gaps for the coming years. Fitch believes adequate capital metrics are one of the bank's strengths. By 2016YE, the bank's FCC to RWAs ratio stood at 14.1%, improving considerably from its 2013-2015 average of 11.9%, as a result of a modest but consistent internal capital generation along with smaller risk weighted assets due to the loans portfolio decline. This level partially absorbs some asset quality weaknesses such as borrower concentrations. Fitch expects that the FCC to RWAs ratio will reduce to levels close to 12% as long as the bank returns to previous growth ratios. RATING SENSITIVITIES IDRS, SUPPORT AND NATIONAL RATINGS As the IDRs, Support and national ratings are driven by the support of BCR, any changes in the ratings of the latter would result in similar actions to BICSA's ratings. Ratings could be downgraded if Fitch perceives a diminished importance of the bank to its parents or if the capacity or willingness for support changes. VR BICSA's VR could be upgraded as a result of sustained improvements in profitability metrics as well as a more stable, less concentrated funding. In turn, a downgrade could result from further asset quality deterioration or liquidity stress that result in a considerable compression of its capital base. The rating actions are as follows: Fitch has affirmed the following ratings: --Foreign currency long-term IDR at 'BB'; Outlook Stable; --Foreign currency short-term IDR at 'B'; --Viability Rating at 'b+'; --Support Rating at '3'; --National Long Term Rating at 'A+(pan)'; Outlook Stable; --National Short Term Rating at 'F1(pan)'; --Senior unsecured debt National Long-Term Rating at 'A+(pan)'; --Senior unsecured debt National Short-Term Rating at 'F1(pan)'; --National Long-Term Rating for a bond program in El Salvador (BCBICSA1) at 'AAA(slv)'. Contact: Primary Analyst Ricardo Aguilar Associate Director +52 81 83999124 Fitch Ratings Prol. Alfonso Reyes 2612, Edificio Connexity Piso 8 Col. Del Paseo Residencial 64920 Monterrey, N.L., Mexico Secondary Analyst Mario Hernandez Associate Director +503 2516-6614 Committee Chairperson Alejandro Garcia Managing Director +1-212-908-9137 Adjustment to Financial Statements: Intangibles, deferred tax assets and other deferred assets were deducted from the Fitch Core Capital, as Fitch believes those are non-loss absorbing assets. 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 Solicitation Status here#solicitation 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. 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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