Fitch Upgrades Scotiabank Peru S.A.A.'s IDR to 'A-'; Outlook Stable

NEW YORK--()--Following the recent upgrade of Peru's Sovereign ratings, Fitch Ratings has upgraded Scotiabank Peru S.A.A.'s (SBP) local and foreign currency Issuer Default Ratings (IDR) to 'A+' and 'A-', respectively from 'A' and 'BBB+'. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS
Peru's ratings were recently upgraded by Fitch to 'BBB+/A-' (for further details on Fitch's recent action on Peru's sovereign ratings, please refer to the press release 'Fitch Upgrades Peru to 'BBB+'; Outlook Stable', dated Oct. 23, 2013). The country ceiling was also upgraded thus allowing SBP's support-driven ratings to be raised.

SBP's IDRs and Support rating are driven by the support it would likely receive from its parent, the Bank of Nova Scotia (BNS; rated 'AA-' by Fitch with a Stable Outlook). Given SBP's importance to its parent due to its performance and growth prospects, it is considered strategically important for BNS and, in Fitch's opinion, there is a high probability that the bank would receive support from BNS if required.

SBP's support rating was previously constrained by Peru's country ceiling, but following the upgrade of the latter to 'A-', the support rating has been upgraded to '1' and is no longer constrained by the country ceiling.

SBP's subordinated debt ('plain vanilla' subordinated that does not have any equity credit following Fitch's criteria) would normally be rated one notch below SBP's local currency IDR, the anchor rating, but it is constrained by the country ceiling and therefore rated at that level, two notches below SBP's local currency IDR.

RATING SENSITIVITIES
SBP's FC IDR could be upgraded should Peru's sovereign rating and country ceiling be upgraded and provided that Fitch's view of BNS's ability and willingness to support SBP remains unchanged. The upside potential of its LC IDR is limited, since this rating is already one notch below BNS's IDR.

The ratings of SBP's subordinated debt would generally move in line with the bank's local currency IDR and would typically be one notch below SBP's LC IDR, unless constrained by the country ceiling, as is the case at present.

CREDIT PROFILE
Improved performance, sound internal capital generation, and, from the outset, significant fresh capital contributions from its parent, resulted in a solid capital base that compares well to that of its regional peers. Continued growth should slightly erode capital ratios, but they are likely to remain strong and consistent with SBP's ratings.

Solid portfolio growth and successful collection efforts helped SBP manage its legacy 'bad bank' and consistently improve asset quality. Past-due loans (PDLs) remain sound relative to those of regional and global peers. PDLs are adequately covered by reserves, and sound risk management policies underpin their stability.

BNS created a sound franchise from the merger of two local banks and the subsequent acquisition of a consumer/microfinance company. After a lengthy merger process, the bank consolidated its position as a universal bank with a stronghold on the corporate segment and growing retail operations.

SBP's funding mix has improved in favor of lower-cost demand deposits, thus underpinning funding costs and margins. In addition, the increasing importance of capital market funding contributes toward improving asset/liability gaps.

Driven by sound growth and resilient margins, as well as contained operating expenses and loan loss provisions, SBP has maintained consistent and strong performance. Efficiency has improved, and, although it is not the most profitable bank in Peru, SBP compares well against its regional peers.

Peru's economy shows strong growth momentum based on sound macro fundamentals. In addition, a proactive regulator, eager to take the lead and apply pre-emptive remedies, has created a strong regulatory environment.

Peru's economic growth and its banks' profitability have spurred competition from existing players and newcomers. Strong regulation keeps aggressive players in check, while low banking penetration means there is room for growth for all. SBP, as should all Peruvian banks, needs to maintain risk-management discipline to avoid costly mistakes.

Fitch has taken the following rating actions on SBP:

--Long-term foreign currency IDR upgraded to 'A-' from 'BBB+'; Outlook Stable;
--Short-term foreign currency IDR upgraded to 'F1' from 'F2';
--Long-term local currency IDR upgraded to 'A+' from 'A'; Outlook Stable;
--Short-term local currency IDR affirmed at 'F1';
--Support rating upgraded to '1' from '2';
--Subordinated debt upgraded to 'A-' from 'BBB+'.
--Viability rating unaffected at 'bbb+'

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012).
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012)
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec, 5, 2012).

Applicable Criteria and Related Research:
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
Assessing and Rating Bank Subordinated and Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=806722
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Contacts

Fitch Ratings
Primary Analyst:
Diego Alcazar, +1-212-908-0396
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Larisa Arteaga, +1-809-563-2481
Director
or
Committee Chairperson:
Alejandro Garcia, +52-81-8399-9146
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Diego Alcazar, +1-212-908-0396
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Larisa Arteaga, +1-809-563-2481
Director
or
Committee Chairperson:
Alejandro Garcia, +52-81-8399-9146
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com