October 17, 2017 / 5:28 PM / 5 months ago

Fitch Upgrades BBVA Banco Frances's Local Currency IDR to 'B+'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, October 17 (Fitch) Fitch Ratings has upgraded BBVA Banco Frances, S.A.'s (BBVA Frances) Local Currency Long-term Issuer Default Rating (IDR) to 'B+' from 'B' and its Support Rating to '4' from '5'. The Rating Outlook is Stable. Fitch has also affirmed the bank's standalone Viability Rating (VR) at 'b'. The upgrades are based on Fitch's opinion that BBVA Frances' shareholder support has improved. KEY RATING DRIVERS IDRS AND SUPPORT The likelihood of parent support drives the bank's Local Currency IDR. In light of an improved economic and regulatory policy framework and decreased risk of government intervention in private banks' operations, Fitch views the parent's commitment to its subsidiary as having improved and as likely to remain in place given the parent's track record of ordinary support, its investments in the bank's competitive position and the subsidiary's strategic importance to the group. Notwithstanding BBVA's strong financial profile (A-/Stable), BBVA Frances's rating uplift from support is limited to one notch above Argentina's Local Currency Long Term IDR given downside risks of high economic stress, the country's tentative policy reforms and still normalizing relations with creditors. VR The bank's funding and liquidity profile underpin its VR of 'b'. BBVA Frances has a long track record of a stable base of term deposits and savings accounts, which represented 68.4% of total funding at June 2017. BBVA Frances also has access to wholesale funding, primarily market debt issuances and lines from local and international banks. BBVA Frances' liquidity is strong for its rating category, with a Liquidity Coverage Ratio (LCR) of 389% at June 2017. Fitch also considers the bank's risk appetite and other financial metrics, which are in line with its current VR, even when taking into account inflation. Notwithstanding improved financing access, higher monetary policy credibility and lower regulatory risks, the still weak operating environment remains the principal constraint on BBVA Frances's VR. In Fitch's view, progress in correcting macroeconomic imbalances, easing of inflation, lower financing constraints and a return to growth will take time to materialize. Positively, the bank's VR also considers the bank's strong franchise and more than 130-year presence in the local market. As of June 2017, BBVA Frances was the country's third largest private bank with a market share of 6.1% by assets. In July 2017, the bank concluded a capital increase of USD 400 million through an issuance of new ordinary shares through local and international offerings. Regulatory capital subsequently increased to 17.3%. Fitch estimates an increase in Fitch core capital to approximately 16%. The bank plans to use the proceeds from the capital raise to finance organic growth. Fitch expects capital cushion to remain ample over the medium term. Over the longer term Fitch expects BBVA Frances capital levels to revert to adequate historical levels, as measured under local and Spanish standards. Notwithstanding its large retail and middle market corporate portfolios, BBVA Frances has maintained strong asset quality indicators relative to its peers, though inflation blurs international comparisons. At June 2017, it reported an impaired loan ratio of 0.9% compared to a system average of 1.9%. Reserve coverage is also consistently high (not declining below 220% since 2012) according to its internal policy of exceeding regulatory requirements. The bank's profitability at mid-year 2017 softened moderately due to continuing margin compression and elevated operating expenses. Administrative expenses were 37% higher than June 2016, an increase slightly below the rate of inflation for the period. However, administrative expenses may moderate in response to lower inflation and the bank's efficiency strategy. RATING SENSITIVITIES IDRS, SUPPORT and VR The bank's IDR and SR are sensitive to a change in Fitch's views on BBVA's ability and propensity to provide support. The bank's IDR and VR would also likely move in line with a change in Argentina's sovereign rating. In addition, the bank's IDR and SR could be negatively affected by changes in the political scene that result in a return to unorthodox policies resulting in political and regulatory intervention in the banking system. On the contrary, these ratings could benefit from a medium term consolidation of a more market friendly political framework. Absent a change in the sovereign rating, the bank's VR could be negatively affected by a deterioration in its liquidity position or loss absorption capacity. Fitch considers it unlikely that Argentine banks' VRs could be rated above the sovereign. Contact: Primary Analyst Mark Narron Director +1-212-612-7898 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Santiago Gallo Director +56(2)-2499-3320 Committee Chairperson Theresa Paiz Fredel Senior Director +1-212-908-0534 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) 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. 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