NEW YORK--(BUSINESS WIRE)--Fitch Ratings has today upgraded BBVA Colombia S.A.'s Viability Rating (VR) to 'bbb' from 'bbb-'; the bank's Issuer Default Ratings (IDRs) and Support Ratings were affirmed. National Ratings were unaffected. See the full list of rating actions at the end of this press release.
KEY RATING DRIVERS
VR
BBVA Colombia's VR was upgraded as the bank improved its capital position and maintained a sound and consistent performance while asset quality and reserves remained good in spite of an uptick in past due loans (PDLs).
BBVA Colombia's VR reflects the bank's asset quality, sustained profitability and improved capital/reserve cushions, which are generally in line with other entities rated with the same VR. Moreover, BBVA Colombia's positive operating environment and strengthened risk management processes give an additional level of comfort as to the sustainability of these indicators.
Colombia's economy performed well through the crisis, showing stability and resilience. Growth has been wide-ranging and sustained while low debt levels and healthy fiscal balances leave room for counter-cyclical stimuli.
A large cash and equivalents position coupled with liquid and relatively safe investments contribute to BBVA Colombia's sound liquidity ratios. Contingency liquidity plans complete a process that has been strengthened following the global credit crunch. Despite its growing franchise and good funding, the bank is exposed to a maturity mis-match common to many banks in Latin America, while the growing share of mortgages and consumer lending suggest a cautious approach towards liquidity and enhancing its funding sources.
The positive economic backdrop and bolstered credit process have contributed to improving asset quality which is now better than the industry average. This is complemented by sound loan loss reserve coverage (2.5x impaired loans and about 3.4% of total loans). Recent expansion trends may suggest some room for deterioration in its asset quality ratios, but they should remain better than those of its local peer group.
Sustained profitability and a moderate dividend policy have allowed BBVA Colombia to stabilize its capital ratios (Fitch core capital improved to 11.25% at December 2013 from 10.3% at December 2011). The bank's capital is deemed adequate considering its ample loan loss reserves, improved asset quality and risk management, good profitability and strengthened Tier 1 capital.
IDR
Given its profitability and growth potential, BBVA Colombia is considered a strategic subsidiary of its parent (BBVA; rated 'BBB+' by Fitch) in Latin America. Hence, its IDRs reflect the support it would receive from its parent, should it be needed.
Following the recent upgrade of Spain's sovereign rating, Fitch expects to review, in the near future, the credit fundamentals and ratings of Spanish banks (including BBVA) that may benefit most from the improved sovereign dynamics.
RATING SENSITIVITIES
VR
In the medium term, BBVA Colombia's VR could improve if the bank is able to maintain an adequate performance while sustaining adequate asset quality and capital/reserves cushion (90-day PDLs below 2.5% and Fitch Core Capital (FCC) above 12%).
The VRs could be pressured by severe asset quality deterioration or a dismal performance that would erode its capital and reserve cushion (90-day PDLs above 3.5% and FCC below 10%).
IDR
BBVA Colombia's IDRs would change if Fitch's assessment of its parent's ability and/or willingness to support the bank changes. In general, the IDR's would move in line with those of the parent, subject to country ceiling restrictions.
PROFILE
BBVA Colombia is a universal bank catering to corporate and consumer customers in the Colombian market where it is the fourth largest with around 9% market share by assets. The bank is the largest foreign bank in Colombia, it is controlled by BBVA, and is fully integrated within its parent's regional strategy and operating structure.
Fitch has taken the following rating actions:
--Viability Rating upgraded to 'bbb' from 'bbb-';
--FC and LC long-term IDRs affirmed at 'BBB'; Outlook Stable;
--FC and LC short-term IDR affirmed at 'F2';
--Support Rating affirmed at '2'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria', 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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=831474
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