NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded the National ratings of Banco Multiple Leon SA (BML) and its related entity Valores Leon, S.A. The Rating Outlook is Stable. A complete list of ratings actions is provided at the end of this press release.
KEY RATING DRIVERS BML - NATIONAL RATINGS
The upgrade of the Long-term National rating reflects the strengthening of BML's capitalization and the consistent improvement in asset quality ratios, which enhance the entity's overall credit profile. The action also considers that BML has a greater credit risk diversification and wider presence within the local entities with National ratings in the 'BBB' category.
BML's subordinated debt National rating is one notch below the issuer's national Issuer Default Rating (IDR), given its subordination to all senior creditors. The bank's regulatory capital ratios benefit from subordinated debt; nevertheless, according to Fitch's methodology, the debt does not receive equity credit, as there is no interest deferral in case of stress and the debt is relatively short term. However, Fitch recognizes the benefits of such issuances in better management of structural maturity mismatches, which are also common to other banks in the region.
KEY RATING DRIVERS BML - IDRs, VRs AND SUPPORT
BML's Viability rating (VR) drives its long-term IDR. Despite adequate capitalization and sound liquidity management, the bank's VR reflects BML's still weak asset quality and profitability ratios relative to similarly rated international peers (emerging market commercial banks with VRs of 'b-', 'b', and 'b+').
Even though the bank has improved its credit risk controls and asset quality metrics have shown a positive trend, they still lag those of similarly rated peers. At YE2012, impaired loans declined to 3.1% of total loans (2011: 3.5%), reflecting significant charge-offs, while at 116%, loan-loss reserve coverage of these loans is low in light of a still high past-due loans ratio. Fitch expects asset quality ratios to consistently continue to improve, and compare favorably to domestic peers in the near term.
BML's net interest margin is high and resilient. However, provisioning expenses and high overhead costs continue to weigh on its net income-to-average assets ratio of 1.5% at the end of December 2012, which remained weak relative to the Dominican market and peers. In Fitch's view, it is likely that profitability ratios will decline slightly in 2013, given lower asset growth, and the bank's target of maintaining more conservative loan loss reserve coverage.
BML's capital ratios are adequate, based on moderate cash dividend payouts and prudent growth. As of December 2012, the Fitch core capital (FCC)-to-risk-weighted assets ratio increased to 14.9%, still lower than the local market average. Furthermore, Fitch views this level as necessary in light of the still weak asset quality, and the comparably lower loan loss reserves.
BML has been able to retain and increase a diversified funding base, as well as reduce its reliance on institutional funding, with a successful expansion into the retail market. At February 2013, cash and marketable securities represented an adequate 49% of total deposits, and money market and short-term funding.
In the event the bank experiences difficulties, support, while possible, cannot be relied upon given the Dominican Republic's low credit ratings.
KEY RATING DRIVERS - Valores Leon- NATIONAL RATING
Valores Leon's ratings reflect the operational and financial support provided by BML. In Fitch's view, the entity is core for Grupo Leon, as it is a key and integral part of its business, and provides some financial products to core clients. Furthermore, the clear commercial identification of this entity with BML, and the reputation risk to which it would be exposed in the case of eventual troubles at Valores Leon results in a high probability of direct or indirect support by BML, should it be required. As such, any changes in BML's creditworthiness would have a direct impact on the ratings of Valores Leon.
RATING SENSITIVITIES - BML
Sustained improvements in asset quality metrics and profitability could be positive for creditworthiness. An unexpected deterioration in asset quality or profitability that pressures the bank's capital ratios could negatively affect its ratings.
RATING SENSITIVITIES - Valores Leon
Changes in BML's ratings would affect Valores Leon's National ratings. A negative change in the propensity of BML to provide support could pressure creditworthiness, but it is not Fitch's base case scenario.
PROFILE
As of December 2012, BML ranked fifth out of 15 commercial banks in the Dominican Republic, with a 6% market share by total assets. At the same date, the Leon family controlled 86.58% of BML, Darby Probanco Holding L.P. (a subsidiary of Darby Overseas Investment Inc.) 11.03%, while the remaining 2.39% was hold by other minor shareholders.
Valores Leon initiated operations in 2002. The institution is a broker-dealer subsidiary of Grupo Financiero Leon (GFL), led by the Leon family.
Considering the aforementioned factors, Fitch has taken the following rating actions:
Banco Multiple Leon SA:
--Foreign and local currency long-term IDR affirmed at 'B-'; Stable Outlook;
--Foreign and local currency short-term IDR affirmed at 'B'';
--Viability Rating affirmed at 'b-';
--Support Rating affirmed at '5';
--Support Floor Rating affirmed at 'NF';
--Long-term National rating upgraded to 'A-(dom)' from 'BBB+(dom)'; Stable Outlook;
--Short-term National Rating affirmed at 'F2(dom)';
--Long-term National subordinated debt upgraded to 'BBB+(dom)' from 'BBB(dom)'.
Valores Leon, S.A:
--Long-term National rating upgraded to 'A-(dom)' from 'BBB+(dom)'; Stable Outlook;
--Short-term National rating affirmed at 'F2(dom)';
--Long-term National senior unsecured debt rating upgraded to 'A-(dom)' from 'BBB+(dom)';
Additional information is available at www.fitchratings.com and www.fitchdominicana.com.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria', Aug. 15, 2012;
--'Securities Firms Criteria', Aug. 15, 2012;
--2013 Outlook: Central America and the Dominican Republic', Dec. 13, 2012.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
2013 Outlook: Central America and the Dominican Republic
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696486
Securities Firms Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686137
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792760
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