MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has upgraded Scotiabank Peru's (SBP) ratings as follows:
--Individual rating to 'C' from 'C/D';
--Local currency long-term
Issuer Default Rating (IDR) to 'A-' from 'BBB+';
--Local currency
short-term IDR to 'F1' from 'F2'.
At the same time, Fitch affirms the following ratings:
--Foreign currency long-term IDR at 'BBB';
--Foreign currency
short-term IDR at 'F2';
--Support rating at '2'.
The Rating Outlook for the IDRs is Positive.
SBP's IDRs reflect the support it would likely receive from its parent, the Bank of Nova Scotia (BNS; rated 'AA-' by Fitch), should it be required. The bank's individual ratings consider its strengthened franchise, adequate reserve coverage, improving capital, and sufficient liquidity; they also factor in its tough competitive environment and somewhat lower profitability. The foreign currency IDR is constrained by Peru's country ceiling.
SBP's individual rating and its local currency IDRs were upgraded considering the bank's sustained performance through the crisis and its strengthened competitive position after consolidating its franchise and acquiring what is now CrediScotia.
Given SBP's importance to its parent, there is a high probability that the bank would receive support from BNS, should it be required. Support should be forthcoming, provided that SBP does not suffer from a systemic risk event.
SBP's IDRs would be upgraded should Peru's sovereign rating and country ceiling be upgraded. Downward risk for the bank's IDRs is limited given its parent support and Peru's economic prospects but some pressure on the individual rating could arise from a significant asset quality decline that would impair earnings and erode its reserve and capital cushion.
SBP's performance was driven by resilient margins - due in part to lower funding costs - that help offset lackluster loan growth - a result of credit tightening during the crisis - while operating costs and loan loss provisions stabilized after important expansions in 2007-2008. Overall efficiency improved thus contributing to stabilize profitability which declined from the highs of 2007 but remains sound with a ROAE reaching about 23% at June 2010 and ROAA of 2.8% at the same date. Asset quality improved after non-performing loans (NPLs) peaked during mid-2009; reserve coverage remains adequate and capital also improved thanks to slower growth, retained earnings and a capital injection to acquire CrediScotia.
Future growth for SBP should come mainly from consumer and SME lending but the bank's clout in the corporate segment, as well as its new businesses, should also contribute. Margins should come under pressure by late 2011 but the impact could be offset by loan growth into higher margin segments. Non-interest revenues should grow gradually as the bank exploits its expanded network and rolls-out new products. Operating costs should remain stable in the short run but an increase can not be ruled out if the bank's business gains steam; credit cost on the other hand should grow in line with the loan portfolio. Overall profitability should improve but remain below the pre-crisis levels with ROAE in the 20% and ROAA around 2.5% that should underpin moderate growth and stable capital levels.
SBP is Peru's third largest bank with a market share of about 16% of the system's assets (18% including CrediScotia). The bank was created in 2006 from the merger of Banco Sudamericano (BS) and Banco Wiese Sudameris (BWS). A universal bank active across all segments, SBP is owned at 97.7% by BNS (Canada's third largest bank), which is in turn widely held.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Global Financial
Institutions Rating Criteria' (Aug. 16, 2010).
Applicable Criteria and Related Research:
Global Financial
Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
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