MONTERREY, Mexico & NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings to Banco de la Nacion Argentina (Sucursal Uruguay) S.A. (BNAUY):
-- Foreign Currency Long-Term Issuer Default Rating (IDR) 'CC';
-- Local Currency Long-Term IDR 'B-';
-- Support Rating '5'.
The Rating Outlook for the Local Currency IDR is Negative.
KEY RATING DRIVERS
BNAUY's Support and Issuer Default Ratings (IDRs) reflect the high probability of receiving support, if it were needed, from the Republic of Argentina (rated Foreign Currency IDR 'CC' and Local Currency IDR 'B-'; Negative Outlook by Fitch).
BNAUY is a branch of Banco de la Nacion Argentina (BNA), so it is fully integrated with the latter. BNA is the largest commercial bank in Argentina, with 28% deposit and 20% loan market shares, with the largest nationwide coverage and is a leader in most business lines. Similar to other government-owned banks, BNA has a sizable exposure to both loans and investments in government securities while enjoying the best funding base in its home country. Foreign branches are used by BNA (including BNAUY) to foster trade finance operations and the operations of Argentinean companies abroad. BNA liabilities (including its branches abroad) are fully guaranteed by the Republic of Argentina.
BANUY's Support Rating of '5' considers that external support, although possible (and backed by an explicit guarantee), cannot be relied upon due to the very limited financial flexibility of the sovereign, and ample and developing economic imbalances.
RATING SENSITIVITIES
BNAUY's ratings are sensitive to Argentina's sovereign rating and its capacity and willingness to provide support to BNA and its branches.
CREDIT PROFILE
BNAUY is the smallest bank in Uruguay. As of Dec. 31, 2013, the bank has a 0.85% and 0.81% share of total assets and deposits of private banks, respectively. BNAUY's main target is to facilitate foreign trade between Argentina and Uruguay. Given the weak franchise and narrow business focus, BNAUY's concentrations on both sides of the balance sheet are ample; however, the bank has a captive clientele.
In Fitch's opinion, BNAUY's low profitability results from its business strategy, low income diversification and small size. Given the limited profile of its operations, the BNAUY's ability to generate income is highly correlated with the flow of trade between the two countries. Also, the branch operates with highly liquid credit exposures (mainly interbank loans and letters of credit with bank counterparties), but low-risk return that makes it difficult for BNAUY to diversify its revenue structure.
BNAUY's capital levels are influenced by its low-risk business focus. As of Dec. 31, 2013, the Fitch Core Capital ratio remains healthy at (34.5%) and above that of its peers. Despite BNAUY's relatively high capital ratios, further growth is limited due to its parent's restrictions (to maintain a minimum capital adequacy at 12%).
The focus on corporate banking and foreign trade support the good asset quality of BNAUY. At the end of 2013, non-performing loans accounted for a low 0.39% of total loans (2012: 0.37%), with ample coverage of loan loss reserves. In Fitch's view, BNAUY's asset quality will continue to be good and influenced by the stable macroeconomic environment.
BNAUY's main liquidity is short-term with stable deposits and a line of credit granted by BNA New York (USD18 million). The ample liquidity also benefits from a very low level of long-term loans, which results in a good fit of the balance sheet. As of Dec. 31, 2013, liquid assets accounted for a high 85.1% of short-term obligations.
The high dollarization of its balance sheet exposes the bank to exchange rate volatility. Implicit FX risk is mitigated by BNAUY's business model in working with exporters. In addition, BNAUY's credit and market risk associated with Argentine bonds is low (14% of total assets).
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria, Jan. 31, 2014;
Rating FI Subsidiaries and Holding Companies, Aug. 10, 2012.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827689
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