MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Banco Interamericano de Finanzas, S.A.'s (BanBif) Long-term Issuer Default Rating (IDR) at 'BBB-'. The Rating Outlook is Stable. A full list of the rating actions follows at the end of this press release.
KEY RATING DRIVERS
VR AND IDRs
BanBif's local and foreign currency IDRs are driven by its VR of 'bbb-', which reflects its solid asset quality, consistent performance, as well as an improving funding and liquidity profile. The ratings also factor in its moderate capitalization and franchise.
BanBif's asset quality remains good despite showing a slight increase in non-performing loans (NPLs) and exhibits one of the lowest delinquency levels in the Peruvian banking system. NPLs accounted for 1.12% of gross loans as of March 2014 (2010 - 2013 average: 0.84%). Prudent credit policies, a business model focused on low-risk products (leasing finance and trade finance) and a positive operating environment underpin the bank's low NPLs. BanBif's main challenge is to continue growing in an orderly manner in a high competitive environment and concentrated banking system. Favourably, Peru's positive economic prospects and relatively low banking penetration supports BanBif's growth potential.
Reasonable and stable interest margins and sustainable generation of non-interest revenues supported BanBif's consistent performance (operating ROAs above 2.0% in the last 3 years). Nevertheless, relatively high funding costs and operating expenses related to the bank's expansion continue to weigh on profitability. BanBif's operating profitability remained stable in the first months of 2014. Positively, due to good asset quality, the bank's loan loss provisions remain under control.
BanBif has a relatively diversified funding structure, although it is reliant on deposits (74% of the total funding at March 2014), in where the proportion of individuals has significantly increased since 2011 given the expansion strategy followed by the bank. As of March 2014, deposits from individual represented 36% of total deposits, in contrast with 30% two years ago. BanBif continues to show maturity mismatches within its balance sheet due to a relatively long-term credit portfolio; however this has been managed by increasing its long-term funding through credit lines and local bond issuances.
Fitch views BanBif's capitalization as moderate in light of its accelerated growth. BanBif's capital position has remained stable over the past years, driven by the consistent earnings retention. BanBif's Fitch Core capital (FCC) to risk-weighted assets (RWA) ratio has remained around 8%, although relatively low to its international peers. BanBif's capital ratios may continue to be supported by its good profitability and prudent dividend pay-out ratio.
BanBif is a medium-sized universal bank that has grown to be Peru's fifth largest bank, with a markets share of approximately 3.4% of total loans and 3.0% of total deposits. BanBif's strategy focuses in diversifying its business portfolio in small and medium enterprises (SMEs) and retail products, mainly to B and C segments without neglecting its core target market, corporates.
SUPPORT RATING AND SRF
BanBif's Support Rating of '4' and Support Rating Floor of 'BB-' indicate its systemic importance for the Peruvian banking system. Being the fifth largest Peruvian bank, Fitch believes that there would be a limited propensity for support from the government, should it be required.
RATING SENSITIVITIES
VR AND IDRs
A sustained performance that strengthens BanBif's FCC to RWA metrics consistently above 10% could benefit the bank's VR and IDRs. A more diversified low-cost funding mix and sustained improvements in efficiency levels could also benefit the bank's ratings.
On the other hand, a constant increase of BanBif's risk appetite that erodes its profitability and drives FCC to RWA consistently below 8% could pressure ratings downward.
SUPPORT RATING AND SRF
Upside potential for the SR and SRF is limited and can only occur over time with a material growth of the bank's systemic importance. These ratings could be downgraded if the bank loses material market share in terms of loans and customer deposits.
Fitch has affirmed the following ratings:
--Foreign Currency Long-Term IDR at 'BBB-'; Outlook Stable;
--Foreign Currency Short-Term IDR at 'F3';
--Local Currency Long-Term IDR at 'BBB-'; Outlook Stable;
--Local Currency Short-Term at 'F3';
--Viability rating at 'bbb-';
--Support Rating at '4';
--Support Rating Floor at 'BB-'.
Additional information is available on 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=839355
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