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Fitch Affirms Banco Popular y de Desarrollo Comunal's IDRs at 'BB'; Outlook Stable
March 28, 2017 / 9:22 PM / 9 months ago

Fitch Affirms Banco Popular y de Desarrollo Comunal's IDRs at 'BB'; Outlook Stable

(The following statement was released by the rating agency) MONTERREY, March 28 (Fitch) Fitch Ratings has affirmed Banco Popular y de Desarrollo Comunal's (BPDC) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB'. The Rating Outlook is Stable. Fitch has also affirmed the bank's short-term Foreign and Local currency IDRs at 'B' and its Viability Rating (VR) at 'bb'. A full list of rating actions follows at the end of this press release. KEY RATING DRIVERS IDR, VR, AND NATIONAL RATINGS BPDC's IDR and National ratings are driven by its intrinsic creditworthiness, as reflected in its VR. BPDC's VR and IDR reflect the high influence of the operating environment, the bank's public nature and the benefits granted by law. Ratings also consider BPDC's ample loss absorption capacity and good profitability, adequate asset quality, stable deposit-based funding but less flexible than closest peers. The National ratings of the senior unsecured debt in El Salvador and Panama reflect the relative strength of the Costa Rican bank compared to other issuers in those countries. The bank's ratings are at the same level as the sovereign rating ('BB'/Stable), reflecting the high influence of the operating environment on the bank's performance. Its financial performance is underpinned by its public nature and the benefits granted by law, such as mandatory capitalization and inflow of deposits. In Fitch's view, the bank's role in the pension regime as the depositary of mandatory savings from Costa Rican workers, its market share in consumer lending, and its franchise evidence its systemic importance. BPDC's capitalization is the financial profile's main strength with a Fitch Core Capital ratio of 24.8% as of December 2016, which is above similarly rated international and local peers. The bank maintains an ample buffer above the solvency metrics required by regulation, buttressed by good profitability, combined with the mandatory contributions it receives from employers. Asset quality metrics are adequate in Fitch's view, with a delinquency ratio (90 days past-due loans) of 2.3%, which has been gradually shrinking and is above the Costa Rican financial system average, as is expected of a retail-oriented bank. Important to note is performance of the bank's loans is controlled by adequate collateral coverage, effective collection mechanisms and sufficient reserves coverage for non-performing loans (NPLs). BPDC's funding structure is comprised primarily of deposits from the public, and those have shown a healthy increase in 2016, in contrast to last year's decline which was compensated for with a shift towards collecting deposits from banks. In Fitch's opinion BPDC's financial flexibility is lower than most local peers that have access to correspondent banks' funding and some of them have international debt issuances. BPDC's profitability compared above local peers and the industry average, underpinned by the bank's consumer lending business model. Nonetheless, in comparison the bank's financial performance was below the leaders in neighboring financial systems. The margin has slightly declined in recent years but still remains ample to offset the low operational efficiency of the bank. SUPPORT RATING AND SUPPORT RATING FLOOR The bank's SR of '3' and SRF of 'BB-' reflect the moderate probability of support from the Costa Rican government despite having no explicit guarantee, given the nature of the bank and its systemic importance. RATING SENSITIVITIES IDRs, VR and National Ratings BPDC's IDRs and VR are sensitive to changes in the sovereign rating. Potential upgrades of BPDC's IDRs and VR are unlikely in the foreseeable future. Conversely, a downgrade of the bank's VR and IDRs could be driven by a significant deterioration in profitability and asset quality that lead to a substantial drop in capital levels. However, the ratings are unlikely to be downgraded below its SRF of 'BB-', considering potential sovereign support. Changes triggered by movements in the sovereign rating would not affect National ratings in Costa Rica, as they would not alter relativities with local peers. On the contrary, such changes would alter the relative strength of BPDC compared to other issuers in Panama and El Salvador. SR and SRF BPDC's SR and SRF are also sensitive to changes in the sovereign rating. Fitch's base case scenario anticipates BPDC maintaining its current systemic importance and company profile and, in turn, changes to the SR and SRF are not likely. Fitch has affirmed BPDC's ratings as follows: --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 Rating at '3'; --Support Rating Floor at 'BB-'. National Ratings Costa Rica --Long-term National rating at 'AA+(cri)'; Outlook Stable; --Short-term National rating at 'F1+(cri)'; --Long-term senior unsecured debt in local currency and foreign currency at 'AA+(cri)'; --Short-term senior unsecured debt in local currency and foreign currency at 'F1+(cri)'. El Salvador --Long-term senior unsecured debt at 'AAA(slv)'; Outlook Stable; --Short-term senior unsecured debt at 'F1+(slv)'. Panama --Long-term senior unsecured debt at 'A+(pan)'; --Short-term senior unsecured debt at 'F1(pan)'. Contact: Primary Analyst Bertha Perez Associate Director +52 81 8399-9161 Fitch Mexico S.A. de C.V. Prol. Alfonso Reyes 2612 64920 Monterrey, Mexico Secondary Analyst Mario Hernandez Associate Director +503 2516-6614 Committee Chairperson Alejandro Garcia Senior Director +1-212-908-9137 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com 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=1021247 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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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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