NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign a 'BB+(EXP)' rating to Banco de Costa Rica's (BCR) proposed senior unsecured bond issuance of up to USD 500 million due in 2023. Proceeds are expected to be used for debt repayment and asset liability management improvement. The final rating of the issuance is contingent upon the receipt of final documents and legal opinions conforming to the information already received. A complete list of BCR's ratings follows at the end of this press release.
KEY RATING DRIVERS
BCR's IDR and the expected issuance rating are aligned with Costa Rica's sovereign ratings. The ratings are driven by the sovereign guarantees for all of the bank's liabilities. According to Costa Rica's banking law (Ley Organica del Sistema Bancario Nacional), all state-owned banks have the guarantee and full collaboration of the state.
BCR is one of the strongest banks in Costa Rica. Its solid franchise benefits from sovereign guarantee, consistent performance, and an extensive branch network. BCR is the second largest bank in Costa Rica in terms of assets and deposits, and enjoys a well-diversified loan portfolio. The bank complements its services with four wholly owned subsidiaries in regulated non-credit activities in Costa Rica and a 51% participation in the Panamanian general licence bank Banco Internacional de Costa Rica (BICSA, rated 'BB+' with a Stable Outlook by Fitch), which allows it to extend its business abroad.
BCR's profitability is modest but sufficient to support asset growth and maintain and adequate capital position. ROAA has remained consistently around 1%, below its international peers' average. High operating expenses will continue to limit profitability. Similar to other state-owned institutions, BCR's efficiency indicators compare below its international peers' average.
The bank's risk appetite is moderate, and asset growth remains modest. A restriction placed by the Central Bank in February has limited the asset growth of the Costa Rican financial system. However, BCR maintains its loan portfolio growth close to its historic average, as the limit established by the Central Bank is well above BCR's loan portfolio growth historic average.
Asset quality remains adequate and compares favorably with international peers' average. BCR's growth toward a more balanced portfolio has improved loan portfolio diversification while keeping loan portfolio dollarization, a concern to most Costa Rican banks, at a moderate level.
BCR's deposit base remains as its main funding source. Further diversification has been achieved by local bond and notes issuances, ample credit lines from international banks and a subordinated debt agreement for USD30 million with the Inter-American Investment Corporation. Asset liability management presents some challenges related to tenure mismatches, partly offset by deposit's stability and adequate liquidity coverage. Fitch expects the proposed long-term issuance be used for short-term debt repayment.
RATINGS SENSITIVITIES
Changes in the bank's IDRs and issuance ratings are contingent on sovereign rating actions for Costa Rica (rated 'BB+'; Stable Outlook).
Fitch has assigned the following rating to BCR's proposed USD500 million issuance:
--Long-term senior unsecured bonds 'BB+(EXP)'
Fitch currently rates BCR as follows:
International ratings
--Long-term IDR 'BB+', Outlook Stable;
--Short-term IDR 'B';
--Long-term local currency IDR 'BB+', Outlook Stable;
--Short-term local currency IDR 'B';
--Viability Rating 'bb+';
--Support Rating '3';
--Support Rating Floor 'BB+'.
National ratings:
--Long-term national rating 'AA+(cri)', Outlook Stable;
--Short-term national rating 'F1+(cri)';
--Long-term senior unsecured bonds 'AA+(cri)';
--Commercial paper 'F1+(cri)'.
Additional information is available on 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'National Ratings Criteria' (Jan. 19, 2011).
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 5, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Assessing and Rating Bank Subordinated and Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=797960
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