NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Banco Internacional del Peru S.A.A.'s (Interbank) viability (VR) and Issuer Default Ratings (IDR) at 'bbb' and 'BBB', respectively. A full list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
VR, IDRs AND SENIOR DEBT
Interbank's VR IDR and senior debt ratings are driven by its consistent, strong performance; robust credit process; solid asset quality; sound franchise; adequate capital; positive economic and regulatory environment; and improving funding base. The ratings also consider the fierce competition the bank faces and its limited margin growth potential.
Interbank's performance over the past few years has been consistently strong driven by loan growth, high margins, adequate expense control and moderate credit costs.
Interbank has developed information-intensive credit scoring models and modern monitoring tools. Credit origination policies are conservative and collection efforts effective. A sound risk management team helps maintain very good asset quality. Past-due loans (15- or 30-day PDLs for most products) stood at 1.75% at YE13.
The bank has built an efficient retail franchise and positioned itself as a top contender in most retail products. Moreover, the bank has not neglected its corporate business, which appears well-focused and competitive, bringing balance and diversification to Interbank's balance sheet and revenue stream.
Besides consistently retaining 55% of its net income, the bank maintains ample reserve coverage thus creating a strong capital/ reserves cushion against unexpected losses. Along with its strong profitability, this allows Interbank to confidently face an eventual downturn.
Peru's economy shows strong growth momentum based on sound macro fundamentals. In addition, a proactive regulator has created a strong regulatory environment that fosters cautious credit policies. Competition and government's efforts to tame growth and curb inflation keep margins below pre-crisis levels. Interbank seeks to underpin its margins and bottom line by cross-selling its existing customers and seeking operating efficiency.
Interbank does not have as diversified a deposit base as its larger competitors but has made significant efforts to widen its deposits base and change its structure. Funding costs have declined as demand deposits increased; in addition, the bank has reversed the growing trend in its institutional funding while remaining an active issuer in capital markets.
Larger financial institutions and smaller, specialized and quite aggressive banks and consumer finance companies have somewhat curbed margin growth. Competition in this high growth market has heightened, and Interbank competes without compromising its credit criteria. Growth potential remains sound due to Peru's still low banking penetration.
The Stable Outlook reflects Fitch's belief that the bank's strong performance and margins are resilient to eventual downturns and even though some credit metrics may see a slight deterioration, they are likely to remain compatible with its current rating.
SUPPORT RATING AND SUPPORT RATING FLOOR
Interbank has a 11.5% market share in deposits and a sizable presence in all business segments. Support from the government should be forthcoming in case of need; Peru's ability to provide such support is reflect in its Sovereign Rating ('BBB+/A-') and underpins Interbank's Support and Support Rating Floor ratings.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Interbank's subordinated bonds are plain vanilla and lack the features that would earn them equity credit following Fitch's criteria. In Fitch's opinion, their probability of non-performance is equivalent to that of Interbank's senior bonds but, they would entail a higher loss in case of default due to their subordinated nature. Hence, they are rated only one notch below the bank's VR.
Interbank's junior subordinated bonds, rated four notches below the bank's VR, have strong equity-like features including the non-cumulative deferral of the coupons and a deeper subordination. This notching reflects the incremental non-performance risk relative to that captured by the VR and the loss severity (two notches) given its deeper subordination.
RATING SENSITIVITIES
VR, IDRs AND SENIOR DEBT
Improvements in the bank's ratings are dependent on its ability to sustain its performance metrics without sacrificing its balance sheet strength. The ratings could benefit from more diversified funding sources, while continuing to produce adequate profitability (ROAA above 1.6%) and maintaining PDLs below 3% and Fitch Core Capital above 10%.
On the other hand, Interbank's ratings could be downgraded if a severe decline in asset quality (PDLs above 4%) or weak profitability erode its capital (FCC below 9%) and reserve cushion.
SUPPORT RATING AND SUPPORT RATING FLOOR
Interbank's SR and SRF could be affected if Fitch changes its view of Peru's ability or willingness to support the bank.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The Subordinated and Junior Subordinated debt ratings would move in line with Interbank's VR.
Fitch affirms Interbank's ratings as follows:
--Long-term foreign currency IDR at 'BBB', Stable Outlook;
--Short-term foreign currency IDR at 'F2';
--Long-term local currency IDR at 'BBB', Stable Outlook;
--Short-term local currency IDR at 'F2';
--Viability rating at 'bbb';
--Support rating '3';
--Support floor at 'BB+';
--Senior unsecured debt at 'BBB';
--Subordinated debt at 'BBB-';
--Junior subordinated debt at 'BB-'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Jan. 31, 2014).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
Assessing and Rating Bank Subordinated and Hybrid Securities Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827461
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