NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Venezuela-based Banco Provincial's (Provincial) long-term Issuer Default Rating (IDR) at 'B+' with a Negative Rating Outlook. A full list of Provincial's rating actions follows at the end of this press release.
RATING ACTION RATIONALE
Provincial's financial profile, as reflected in its Viability Rating (VR), drives the bank's long-term IDR. Provincial's IDRs are at the same level as Fitch's Sovereign ratings for Venezuela (foreign and local currency IDRs 'B+'; Outlook Negative).
Fitch has affirmed Provincial's VR and IDRs as the bank remains well positioned to deliver strong financial results (even when adjusting for inflation) despite the high degree of government intervention in the banking business. In Fitch's opinion, strong risk policies bolstered by Provincial's largest shareholder, Spain's Banco Bilbao Vizcaya Argentaria (BBVA), combined with the bank's vast knowledge of the Venezuelan market will continue to underpin the resilience of the bank's solid credit profile, even with the expected weakening of the operating environment this year.
Fitch believes that the shareholders' willingness to provide support should it be required is possible, though it cannot be relied upon due to the government's interference with the banking system, which is what results in Provincial's Support rating of '5'. Despite Provincial's systemic importance, its support floor of 'No Floor' (NF) reflects Venezuela's speculative-grade rating, and the government's limited willingness and capacity to provide support.
SENSITIVITIES/RATING DRIVERS - IDRS, VR, AND NATIONAL RATINGS
Provincial's ratings reflect its strong franchise and financial profile. The ratings also incorporate the bank's conservative risk management and operational support from BBVA. Despite the bank's strong credit profile, the ratings are constrained by the sovereign due to the negative effects of government control over the financial sector and the broader economy (reflected in Venezuela's 'B+'; Negative Outlook).
Provincial continues to be one of the most profitable private sector banks in Venezuela due to its stable and ample net interest margin, controlled credit costs and better efficiency. The bank's ROAA ratio reached a historic peak of 5.85% (not adjusted for inflation) at year-end 2012, comparing favorably to both domestic (private sector universal banks) and international (emerging market commercial banks with a VR of 'b-/b/b+') peers. Given the recent currency devaluation, Fitch expects lower credit growth, as well as higher credit costs and operational expenses to pressure earnings in 2013. Nevertheless, Provincial is likely to maintain its strong financial performance relative to peers, even on an inflation-adjusted basis.
Low impaired loans and charge-offs and ample loan loss reserve coverage continues to support the bank's stellar asset quality relative to peers. The bank's loan portfolio is adequately diversified given its leading position in most business segments. Although Fitch expects asset quality to deteriorate in the short term due to the challenging economic environment, Provincial's indicators should remain among the best relative to domestic and international peers.
Access to ample retail funding is a key strength of the bank in terms of funding costs and liquidity management as well as a tool to leverage its growth through cross-selling from its vast customer base. Excess liquidity continued to drive robust deposit growth in 2012, reducing Provincial's loans/customer deposits ratio to 59% at year-end. Fitch expects the bank's loan portfolio to remain fully funded by deposits over the medium term.
Moderate cash dividends limited by local regulation and high profits sustained Provincial's equity growth at almost the same level as asset growth. As a result, the bank's Fitch core capital/adjusted weighted risks ratio decreased only slightly to 17.2% at YE2012 from 17.5% at YE2011. Nevertheless, Provincial's capitalization still compares favorably to both domestic and international peers, a trend Fitch expects to continue in 2013.
SENSITIVITIES/RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
There is limited upside to the bank's Support rating and Support Floor over the medium term given the sovereign's current ratings and Outlooks and the government's propensity to intervene in the banking business and overall private sector activities.
Provincial is Venezuela's third largest bank, with a 12.2% market share in terms of total assets at Dec. 31, 2012. Spain's BBVA controls about 55.2% of Provincial's equity and Grupo Polar is the second largest shareholder with a 26.5% stake.
Fitch has affirmed the following ratings:
--Long-term foreign and local currency IDRs at 'B+'; Outlook Negative;
--Short-term foreign and local currency ratings at 'B';
--Viability at 'b+';
--Support at 5;
--Support Floor NF;
--Long-term national-scale rating at 'AA+(ven)';
--Short-term national-scale rating at 'F1+(ven)'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'Outlook 2013: Andean Banks' (Dec. 14, 2012).
Applicable Criteria and Related Research:
2013 Outlook: Andean Banks
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696215
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
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