BUENOS AIRES, Argentina--(BUSINESS WIRE)--Fitch Ratings has affirmed Banco de la Nacion's (BN) IDR at 'BBB'. The Rating Outlook is Stable. A detailed list of BN's ratings is provided at the end of this release.
KEY RATING DRIVERS
BN's IDRs, Support rating and Support Rating Floor (SRF) reflect the support it would receive from its owner, the Republic of Peru, should it be required. Besides BN's key role within the government's operations, its status as an autonomous government agency and an explicit provision in its inception law states that the bank enjoys the full faith and credit of the Republic of Peru. Peru's ability to provide such support is reflected in its sovereign rating (rated 'BBB'/'BBB+' with a Stable Outlook by Fitch).
BN's Viability Rating (VR) reflects its solid capital base, good asset quality, ample reserves, sound profitability, and high liquidity. Fitch's view on BN's viability rating is tempered by the potential political influence on the bank's operations with decisions that could result in the bank taking more risk. Although unlikely at the present time, this scenario cannot be completely ruled out in the medium and long term. Fitch also factored BN's high exposure to the government on both sides of the balance sheet, the dependence of operating revenues on government sources, narrow product offering, and aging IT platform in its VR.
RATING SENSITIVITIES
The Rating Outlook on BN's IDRs is aligned with the Sovereign rating of Peru. BN's IDRs and SRF would move in line with sovereign ratings. As such, downgrade risk for BN's IDRs is currently limited given Peru's economic prospects.
BN's viability rating could be pressured by dismal results, weaker asset quality, and significantly lower capital levels. Another potential ratings detriment is if the government takes measures that prompt the bank to take higher risks. Greater protection against potential political influence and stability of the bank's management and board of directors would be positive. However, it is not likely given BN's role in the medium term. Upside potential could also stem from an improvement in BN's IT platform that would enable it to diversify its range of products and services and improve its cost efficiency ratios.
PROFILE
BN's profitability is good. Based mainly on its ample margins, BN benefits from a low cost deposit base and healthy asset quality ratios. Its performance in 2012 and first-quarter 2013 (1Q'13) was driven by loan growth, ample albeit narrowing margins, growing non-interest revenues and low credit cost. Operating expenses benefited in 2012 from a tax refund of PEN57.7 million and extraordinary expenses in 2011. ROAA improved to 2.75% at March 31, 2013 (2.22% at Dec. 31, 2011) and ROAE reached a high 37.07% due to the decline in BN's equity after the earnings distribution.
BN's asset quality ratios are healthy as most of its lending is to the government and its agencies, to public servants and government retirees. Past due loans accounted for a low 0.61% of the total and reserve coverage was 526.51% at March 31, 2013.
Capitalization is sound, benefiting from the low-risk weight of its assets (49.3% in cash and 22.8% in government securities). Its capital adequacy ratios are sound, though they have gradually declined due to the bank's expansion. At Dec. 31, 2012 BN's Fitch core capital to risk-weighted assets ratio equalled a high 28.19% and its regulatory capital ratio 19.24%. BN's steady profitability should be sufficient to underpin capital and sustain growth.
BN is Peru's financial agent and largest government-owned commercial bank. BN offers banking services to government agencies and public servants and retirees and plays an important role in the government's economic policies. This is especially true in developing Peru's most remote areas where private sector banks are not present.
Fitch has affirmed the following ratings for BN with a Stable Outlook:
--Long-term foreign currency IDR at 'BBB';
--Short-term foreign currency IDR at 'F2';
--Long-term local currency IDR at 'BBB+';
--Short-term local currency IDR at 'F2';
--Viability Rating at 'bb+';
--Support rating at '2';
--Support floor at 'BBB'.
Additional information is available at 'www.fitchratings.com'.
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=796651
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