May 18, 2017 / 8:52 PM / 3 months ago

Fitch Affirms Multibank at 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) MONTERREY, May 18 (Fitch) Fitch Ratings has affirmed Multibank, Inc.'s (Multibank) Long- and Short-Term Foreign Currency Issuer Default Ratings (IDRs) at 'BBB-'/'F3'. The Viability Rating (VR) was affirmed at 'bbb-'. The Rating Outlook on the long-term ratings is Stable. A full list of rating actions follows at the end of this press release. KEY RATING DRIVERS IDRS, VR, AND NATIONAL RATINGS Multibank's IDRs and National ratings are driven by its VR, which reflects the bank's good asset quality, consistent profitability metrics and adequate liquidity profile. The ratings also consider Multibank's challenges to consolidate its franchise and improve its weak capital ratios. In Fitch's opinion, the bank's asset quality is good, driven by low non-performing loan (NPL) ratios although pressured by relative high concentrations per borrower. Multibank's NPL deteriorated slightly to 1.2% from its 2013-2015 average of 0.8%. This is attributed to a single case which not only affected Multibank but a large part of the Panamanian banking system. This loan represents around 30% of impaired loans, and as the recovery is highly probable, Fitch expects NPLs to return to levels below 1%. Asset quality is pressured by relatively high concentrations per borrower; by YE16, the top 20 debtors accounted for about 1.2x of its Fitch Core Capital (FCC), although individually no single borrower exceeds 10%. In Fitch's view, Multibank's capitalization metrics represent its major weakness. Despite the recent improvement of its FCC to Risk Weighted Assets (RWA) ratio to 10.7%, from its 2013-2015 average of 9.3%, levels are still below those of its peers. Weak capital metrics are further exacerbated by slight high concentrations on its top 20 debtors, although this is partially alleviated by a sufficient portion of provisions. Capital is also consistently weakened by securities and F/X revaluation reserves. Also, the bank consistently has dividend payouts. Positively, in the past two years internal capital generation rates have been above asset growth. Fitch believes that Multibank's major challenge resides in strengthening its capital. We believe that Multibank's profitability metrics are adequate and have remained consistent through the years. Since 2013, the ratio of operating profit to RWAs has been around 2.1%. Although efficiency ratios have improved since 2015, the positive effects are countered by higher reserves charges. Fitch believes that income diversification is a challenge for Multibank, as the dependence on interest income on loans is high. Multibank's funding and liquidity profiles are adequate, in Fitch's view. The bank's main funding source is its deposit base, which, by YE16, accounted for nearly 75% of its total funding. Other sources include bond issuances and credit lines from global and multilateral banks. The bank has shown stability and steady growth of its deposit base. By YE16, its loans to deposit ratio stood at an adequate 108.6%. The bank's adequate liquidity profile is aided by a reasonable proportion of highly liquid assets. SUPPORT RATING AND SUPPORT RATING FLOOR The bank's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF' reflect Fitch's expectation of no support. As a longstanding dollarized economy, Panama lacks a lender of last resort, though Banco Nacional de Panama, the largest state controlled bank, could provide temporary liquidity loans. RATING SENSITIVITIES VR, IDRS AND NATIONAL RATINGS Multibank's ratings could be upgraded if the bank further expands and consolidates its franchise, and improves its capital ratios, although Fitch does not foresee this scenario in the short term. A downgrade could result from added pressure on its capital that drives the FCC ratio to consistently below 10%. Fitch has affirmed the following ratings: --Long-term Foreign Currency IDR at 'BBB-'; Outlook Stable; --Short-Term Foreign Currency IDR at 'F3'; --Viability Rating at 'bbb-'; --Support Rating at '5'; --Support Rating Floor at 'NF'; --National long-term rating at 'AA(pan)'; Outlook Stable; --National short-term rating at 'F1+(pan)'; --Senior unsecured debt National long-term rating at 'AA(pan)'. Contact: Primary Analyst Ricardo Aguilar Associate Director +52 81 83999124 Fitch Ratings Prol. Alfonso Reyes 2612, Edificio Connexity Piso 8 Col. Del Paseo Residencial 64920 Monterrey, N.L., Mexico Secondary Analyst Rolando Martinez Senior Director +503 2516-6619 Committee Chairperson Alejandro Garcia Managing Director +1-212-908-9137 Adjustment to Financial Statements: Intangibles, deferred tax assets, other deferred assets and net asset value of the insurance subsidiary were deducted from the Fitch Core Capital, as Fitch believes those are non-loss absorbing assets. Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Metodología de Calificaciones en Escala Nacional (pub. 27 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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