BUENOS AIRES, Argentina & SANTIAGO, Chile--(BUSINESS WIRE)--Fitch Ratings has upgraded Banco de Chile's (BCH) Individual Rating to 'B' from 'B/C' and its Support rating floor to 'BBB+' from 'BBB-'. At the same time Fitch has affirmed BCH's other ratings as follows:
--Foreign and local currency long-term Issuer Default Rating (IDR) at 'A';
--Foreign and local currency short-term ratings at 'F1';
--Long-term national rating at 'AAA(cl)';
--Short-term national rating at 'N1+(cl)';
--Support at '2';
--Long-term rating of its US$200 million subordinated bonds due 2016 at 'BBB+';
--National long-term rating on its senior unsecured bonds at 'AAA(cl)';
--National long-term rating on its subordinated bonds at 'AA(cl)';
--National rating of its equities at 'Primera Clase nivel 1(cl)'.
The Rating Outlook is Stable.
The upgrade on BCH's Individual rating reflects the enhancements of its overall performance in the past few years in which it took advantage of the improvement of the operating environment and of its strategic alliance with Citigroup. This was reflected in the resilience of the bank's profitability, which allowed it to weather the past three years of economic crisis and market volatility very well.
The ratings assigned to BCH also reflect its importance to the Chilean economy, strong domestic franchise, diversified funding sources, adequate capital base and the depth of its management. On the other hand, its main shareholders' subordinated debt with the Central Bank of Chile was also considered, as its payment with BCH's cash dividends constrains its internal capital generation somewhat, although its weight has decreased as net income grows. Fitch also notes the high level of hybrid equity instruments in BCH's regulatory capital base, especially when viewed in light of international comparisons of similarly rated banks.
BCH's foreign and local currency long-term IDRs have a Stable Outlook. Upside potential lies in continued growth while maintaining its sound overall performance, low risk profile and a material improvement of the composition and quality of its capital base. This might come from faster repayment of its subordinated debt or lower cash dividend needs from its shareholder, or from greater and sustained levels of core capital. Downward pressure could result from a significant deterioration of its capitalization given its strong growth plans or of its asset quality.
BCH's profitability is sound and resilient, based on strong operating revenues, very good cost efficiency and healthy asset quality, which helped the bank weather the last three years of high market volatility very well. In 2010, its net income rose by 46.8% year over year boosted by loan growth, a positive inflation rate that benefitted its inflation-indexed assets (in CLF, or unidades de fomento), higher fees, and a sharp reduction in its cost of credit. Fitch expects BCH's performance to maintain its positive trend as the bank is well prepared to take advantage of the good economic prospects and grow strongly without taking excessive risks.
BCH's asset quality ratios markedly improved in 2010 in line with its sound risk management and the recovery of the economy after the crisis. Its loan book is well diversified and its impaired loans (loans that are over 90 days past due) fell to 1.20% of the total and were 270.2% reserved.
BCH main source of funds is its large and low-cost deposit base. In addition it has ample access to funds from the local and international capital markets.
BCH's capitalization is adequate and in line with its international peers rated in the 'A' category. At Dec. 31, 2010 its Fitch core and eligible capital ratios were 7.80% and 11.14%, respectively, and its regulatory capital to risk-weighted assets was 13.39%. Management intends to keep the latter ratio over 11.5% by earnings retention and issuing subordinated debt. In addition, the recently announced capital increase of USD500 million should support its capital base as it continues with its expansion plan.
At Dec. 31, 2010, BCH was Chile's second largest bank, with strong market shares in all segments. At that date, it had a market share of 19.2% of total loans and 22.8% of sight deposits.
BCH's main shareholder, with 61.71%, is LQ Inversiones Financieras (LQIF), part of Grupo Luksic, one of Chile's largest business groups. Citigroup holds 50% of LQIF, or a 30.85% indirect stake in BCH.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria', Aug. 16, 2010;
--'Short-Term Ratings Criteria for Corporate Finance', Nov. 2, 2010.
Applicable Criteria and Related Research:
Short-Term Ratings Criteria for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
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