Fitch Upgrades Banco de Bogota to 'BBB'; Outlook Stable

NEW YORK--()--Fitch Ratings has today upgraded Banco de Bogota's (Bogota) Viability Rating (VR) to 'bbb' from 'bbb-' and its Issuer Default Rating (IDR) to 'BBB' from 'BBB-'. The Rating Outlook is Stable. A complete list of rating actions is provided at the end of this release.

Fitch has upgraded Bogota's VR and IDRs as it sustained its sound performance and maintained its solid balance sheet while successfully incorporating BAC-Credomatic (BAC) into its business. This has resulted in better revenue diversification, a better balanced portfolio and significant cross-sell and cross fertilization potential.

Bogota's ratings reflect its strong franchise, sound asset quality and reserves, consistent performance, conservative credit/risk policies, ample, diversified funding, adequate capital and systemic importance. Fitch's view of Bogota's creditworthiness is tempered by its heightened competitive environment in Colombia and abroad, and the risk arising from its on-going diversification into retail.

Bogota's ratings would be underpinned if the bank sustains its performance while adequately managing BAC, achieving synergies and better diversification in Colombia and Central America.

On the other hand, a dismal performance and/or severely weaker asset quality that would pressure loan loss provisions and erode the bank's capital/reserves cushion would pressure its VR and IDRs downwards.

Given its size and systemic importance, Bogota is likely to receive support from Colombia's government, should it be required. Colombia's ability to provide such support is reflected in Colombia's sovereign rating ('BBB-/ROS') and drives Bogota's support floor.

Boasting over 140 years of history, Bogota is Colombia's second largest bank with a market share of about 15% by assets. Traditionally oriented to the corporate segment, the bank has diversified into the retail business and expanded abroad. The bank operates in six Central American countries through BAC and is controlled by Grupo Aval (rated 'BBB-'), Colombia's largest financial services group.

Bogota acquired (in December 2010) BAC, a retail-oriented bank with operations throughout Central America that adequately complement Bogota's traditional business. This acquisition brings great growth and synergy potential and Bogota has successfully integrated this well-run operation that maintains its performance in spite of a less booming operating environment.

Bogota's conservative credit and risk management policies and positive economic environment in Colombia (as well as stability in Central America) resulted in very good asset quality (30-day PDL's stood at 1.9% at June 2012) that has consistently improved in the past few years and is complemented by sufficient loan loss reserves (1.4 times [x]).

Driven by organic and inorganic growth, Bogota's performance has been quite consistent over the last few years and through the crises. Operating expenses have increased after the integration of BAC but credit cost declined in relative terms thus underpinning profitability that in spite of declining slightly remained close to 2% for the ROAA and 18% for the ROAE.

Bogota's credit/risk culture and policies are quite conservative. The bank is a sound competitor with a strong know-how of is core business that approaches each new undertaking with caution and measured risk-taking. Product development and risk management are also sound in BAC and cross-fertilization should allow Bogota and BAC to diversify their loan portfolios and further reduce customer/product concentration.

Bogota enjoys a wide customer base and quite moderate funding costs; customer deposits fund Bogota's loan portfolio in its entirety and the bank has ample access to Colombia's and international capital markets. Furthermore, it enjoys the full support of its shareholders as illustrated during the acquisition of BAC.

Fresh capital injections of about USD1.2 billion helped Bogota finance the acquisition of BAC, restore its capital and boost its capital ratios. Bogota's Fitch core capital stood at 11.6% at June 2012 and compares well with its peers in its rating category. Capital must be seen in line with its reserves, asset quality, earnings generation, and generally positive economic background.

Fitch has taken the following rating actions on Bogota:

--Long-term foreign currency Issuer Default Rating (IDR) upgraded to 'BBB' from 'BBB-'; Outlook Stable;

--Short-term foreign currency IDR upgraded to 'F2' from 'F3';

--Long-term local currency IDR upgraded to 'BBB' from 'BBB-'; Outlook Stable;

--Short-term local currency IDR upgraded to 'F2' from 'F3';

--Viability rating upgraded to 'bbb' from 'bbb-';

--Support rating affirmed at '3';

--Support rating floor affirmed at 'BB+';

--Senior unsecured debt upgraded to 'BBB' from 'BBB-'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

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Contacts

Fitch Ratings
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com
or
Primary Analyst:
Diego Alcazar, +1-212-908-0396
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Andres Marquez, + 57 1 326-9999
Director
or
Committee Chairperson:
Rene Medrano, + 503 2516-6610
Senior Director

Contacts

Fitch Ratings
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com
or
Primary Analyst:
Diego Alcazar, +1-212-908-0396
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Andres Marquez, + 57 1 326-9999
Director
or
Committee Chairperson:
Rene Medrano, + 503 2516-6610
Senior Director