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Fitch Affirms Scotiabank Peru S.A.A.'s IDR at 'BBB+'; Outlook Stable
July 17, 2013 / 8:15 PM / 4 years ago

Fitch Affirms Scotiabank Peru S.A.A.'s IDR at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, July 17 (Fitch) Fitch Ratings has affirmed Scotiabank Peru S.A.A.'s (SBP) local and foreign currency Issuer Default Ratings (IDR) at 'A' and 'BBB+', respectively, and its Viability rating (VR) at 'bbb+'. The Rating Outlook is Stable. See the full list of ratings affirmed at the end of this release. KEY RATING DRIVERS 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, there is a high probability that the bank would receive support from BNS if required. Support during a systemic risk event may not be forthcoming. SBP's VR reflects the bank's improved franchise, sound capital, robust asset quality and reserves, improving funding mix and consistent performance. The ratings also factor in Peru's positive economic environment and heightened competition. SBP's subordinated debt is rated two notches below SBP's local currency IDR reflecting its subordinated nature and the country ceiling constraint. RATING SENSITIVITIES SBP's IDRs 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. SBP's VR could be upgraded if the bank maintains its robust balance sheet and performance amid a stable environment; however, this is considered a more medium-term event. On the other hand, some pressure on the Viability rating could arise from a significant asset quality decline that would impair earnings and erode its reserve and capital cushion. The ratings of SBP's subordinated debt would generally move in line with the bank's local currency IDR. 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 affirmed the following ratings: --Long-term foreign currency IDR at 'BBB+'; Outlook Stable; --Short-term foreign currency IDR at 'F2'; --Long-term local currency IDR at 'A'; Outlook Stable; --Short-term local currency IDR at 'F1'; --Viability rating at 'bbb+'; --Support rating at '2'; --Subordinated debt at 'BBB+'. Contact: Primary Analyst Diego Alcazar Director +1-212-908-0396 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Larisa Arteaga Director +1-809-563-2481 Committee Chairperson Ed Thompson Senior Director +1-212-908-0364 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. 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: Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities here Rating FI Subsidiaries and Holding Companies here Additional Disclosure Solicitation Status 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 WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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