Fitch Assigns Banrural L-T IDR of 'BB'; Outlook Stable

SAN SALVADOR, El Salvador & NEW YORK--()--Fitch Ratings has assigned ratings to Guatemala's Banco de Desarrollo Rural, S.A. (Banrural), as follows:

--Long-term foreign currency Issuer Default Rating (IDR) 'BB';

--Short-term foreign currency IDR 'B';

--Long-term local currency IDR 'BB';

--Short-term local currency IDR 'B';

--Individual 'C/D';

--Support '3';

--Support Rating Floor 'BB-'.

The Rating Outlook is Stable.

Banrural's Individual rating and IDRs reflect the entity's sound and consistent financial performance, strong local franchise, low borrower concentration and large depositor base. The ratings also consider the vulnerability of the asset quality to economic cycles. The Stable Outlook reflects that Fitch does not anticipate substantial changes in the entity's risk profile in the foreseeable future. However, while the upside potential on the Individual rating is limited, Banrural's IDRs may benefit from a continued improvement in asset quality. In turn, failure to sustain its current capital level or a significant deterioration in asset quality and/or performance could trigger a downgrade.

Banrural exhibits consistent profitability metrics, which compare positively to those of its peers. Profitability is boosted by an ample net interest margin which balances the relatively low contribution from non-interest income with increasing operating expenses. Fitch foresees that Banrural will maintain its good performance in the medium term.

Banrural's ample depository base is also a major driver of its ratings, with deposits showing moderate concentration that is on a decline. A growing number of branches together with the ample liquidity that prevails in the market have benefited this trend.

Banrural has shown above-average growth in its loan portfolio, supported by its greater geographic coverage as well as its partnerships with private and public entities. Loan portfolio concentration in the largest economic groups is low, as is the entity's foreign currency exposure. Yet, the payment ability of some debtors has weakened in 2010, reflected in a larger and relatively high proportion of restructured loans and foreclosed assets. However, the improving economic environment may help control asset quality in 2011. Banrural's investment portfolio is concentrated in public securities, a common practice among Guatemalan banks due to both regulatory restrictions and the limited investment choices available in the local market.

The entity shows a positive trend in its capital ratios. The recent retrenchment in lending, coupled with sustained earnings and controlled dividend distribution favors this trend. Although capital metrics may decline when assets resume their growth, they are expected to remain at reasonable levels given the bank's low appetite for risk.

Banrural is a financial institution domiciled in Guatemala. It is currently the third largest bank in terms of assets (representing 18.6% of total assets as of December 2010), the second largest in terms of loan origination (21.9%) and the largest in terms of net profits (28.8%).

Additional information is available at www.fitchratings.com

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria', dated Aug. 16, 2010;

--'National Ratings - Methodology Update', dated Dec. 18, 2006.

Applicable Criteria and Related Research:

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685

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Contacts

Fitch Ratings
Primary Analyst
Edgar Cartagena, +503 2516 6613
Associate Director
Fitch Centroamerica S.A.
Edificio Plaza Cristal, Tercer Nivel
79 Av. Sur y Calle Cuscatlan
San Salvador, El Salvador
or
Secondary Analyst
Rene Medrano, +503 2516 6610
Senior Director
or
Committee Chairperson
Franklin Santarelli, +1-212-908-0739
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Edgar Cartagena, +503 2516 6613
Associate Director
Fitch Centroamerica S.A.
Edificio Plaza Cristal, Tercer Nivel
79 Av. Sur y Calle Cuscatlan
San Salvador, El Salvador
or
Secondary Analyst
Rene Medrano, +503 2516 6610
Senior Director
or
Committee Chairperson
Franklin Santarelli, +1-212-908-0739
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
Email: sandro.scenga@fitchratings.com