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Fitch Takes Rating Actions on Private-Sector Venezuelan Banks
April 1, 2014 / 8:33 PM / in 4 years

Fitch Takes Rating Actions on Private-Sector Venezuelan Banks

(The following statement was released by the rating agency) NEW YORK, April 01 (Fitch) Fitch Ratings has taken rating actions on the following six private-sector Venezuelan banks following the downgrade of the sovereign's Issuer Default Ratings (IDRs): --Banesco, Banco Universal, CA (BBU); --Banco Provincial, S.A., Banco Universal (Provincial); --Mercantil, C.A. Banco Universal (Mercantil); --Banco Occidental de Descuento (BOD); --Banco del Caribe, C.A. Banco Universal (Bancaribe); --Banco Exterior, C.A. Banco Universal (Exterior). A full list of rating actions follows at the end of this press release. These rating actions follow the downgrade of Venezuela's IDRs to 'B' from 'B+'. The Rating Outlooks on the sovereign's IDRs remain Negative. The banks' 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) and high exposure to the public sector. KEY RATING DRIVERS - IDRS, VRS AND NATIONAL RATINGS These entities are the six largest private sector universal commercial banks in Venezuela, with operations primarily in the country. All of these banks' Viability Ratings (VRs), or standalone intrinsic financial strengths, drive their IDRs and do not take into account either institutional or state support. High inflation, which reached 53% at year-end 2013 (metropolitan Caracas), distorts financial ratios compared with other emerging market universal/commercial banks with a VR in the 'b' category. BBU BBU's ratings balance its solid profitability (even when adjusting for inflation) and asset quality indicators, as well as its adequate liquidity and capitalization relative to domestic and international peers. BBU is the main subsidiary of Banesco Holding, S.A. PROVINCIAL Provincial's ratings reflect its strong franchise and financial profile compared with both domestic and international peers. The ratings also incorporate the bank's conservative risk management and operational support from Spain's Banco Bilbao Vizcaya Argentaria (BBVA). Provincial's majority shareholder is BBVA, which has a 55% stake in the bank. MERCANTIL Mercantil's ratings reflect its strong performance (even when adjusting for inflation), manageable liquidity risk and resilient credit risk profile. The strength of its balance sheet, management's experience in dealing with the inherently volatile operating environment in Venezuela, and its ample market share and strong franchise allow the bank to maintain a relatively stable deposit base. Mercantil is the largest subsidiary of Mercantil Servicios Financieros. BOD BOD's ratings incorporate a history of volatile profitability, capitalization, and asset quality indicators relative to both domestic and international peers. With the exception of liquidity, the bank's financial metrics are weaker than other large universal commercial banks in Venezuela. The bank is controlled by Cartera de Inversiones Venezuela (CIV), a diversified holding company with interests in financial and nonfinancial companies. CARIBE Bancaribe's ratings reflect its resilient performance, stable asset quality indicators and adequate liquidity risk. It also incorporates a strengthening of capital ratios in 2013, following pressures related to high nominal asset growth in recent years. Scotiabank has a minority stake of 27% in Bancaribe. EXTERIOR Exterior's ratings reflect its solid asset quality and profitability ratios (even when adjusting for inflation). Liquidity and capitalization remain adequate, though weaker than some of its larger domestic peers. Grupo Bancario Ignacio Fierro has an 84% stake in Exterior. RATING SENSITIVITIES - IDRS, VRS AND NATIONAL RATINGS Government intervention that pressures financial performance of these banks could negatively affect the banks' IDRs, VRs and National ratings. A sustained deterioration in profitability or asset quality that pressures capitalization ratios could also be negative for their ratings. Additionally, a downgrade of the sovereign's IDRs would result in a similar action on the IDRs and VRs of these banks, which are currently capped at the sovereign. There is no upside potential to any of the banks' international ratings in the near term as the sovereign currently has a Negative Rating Outlook. KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR The banks' Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF' reflect Fitch's expectation of no support. Despite these banks' systemic importance, support cannot be relied upon given Venezuela's speculative-grade rating and lack of a consistent policy on bank support. Government interference in the banking system could also negatively influence shareholder support if these banks were to require financial assistance. Venezuela's propensity or ability to provide timely support to these banks is not likely to change given the sovereign's low speculative-grade ratings. As such, the SR and SRF have no upgrade potential, particularly as the sovereign has a Negative Outlook. Fitch has taken the following rating actions: BBU --Long-term foreign and local currency IDRs affirmed at 'B'; Outlook revised to Negative from Stable; --Short-term foreign and local currency ratings affirmed at 'B'; --Viability affirmed at 'b'; --Support affirmed at 5; --Support Floor affirmed at NF; --Long-term national-scale rating affirmed at 'A+(ven)'; --Short-term national-scale rating affirmed at 'F1(ven)'. Provincial --Long-term foreign and local currency IDRs downgraded to 'B' from 'B+'; Outlook Negative; --Short-term foreign and local currency ratings affirmed at 'B'; --Viability downgraded to 'b' from 'b+'; --Support affirmed at 5; --Support Floor affirmed at NF; --Long-term national-scale rating affirmed at 'AA+(ven)'; --Short-term national-scale rating affirmed at 'F1+(ven)'. Mercantil --Long-term foreign and local currency IDRs downgraded to 'B' from 'B+'; Outlook Negative; --Short-term foreign and local currency ratings affirmed at 'B'; --Viability downgraded to 'b' from 'b+' --Support affirmed at 5; --Support Floor affirmed at NF; --Long-term national-scale rating affirmed at 'AA+(ven)'; --Short-term national-scale rating affirmed at 'F1+(ven)'. BOD --Long-term foreign and local currency IDRs affirmed at 'B'; Outlook revised to Negative from Stable; --Short-term foreign and local currency ratings affirmed at 'B'; --Viability affirmed at 'b'; --Support affirmed at 5; --Support Floor affirmed at NF; --Long-term national-scale rating affirmed at 'BBB(ven)'; --Short-term national-scale rating affirmed at 'F3(ven)'. Caribe --Long-term foreign and local currency IDRs affirmed at 'B'; Outlook revised to Negative from Stable; --Short-term foreign and local currency ratings affirmed at 'B'; --Viability affirmed at 'b'; --Support affirmed at 5; --Support Floor affirmed at NF; --Long-term national-scale rating affirmed at 'A+(ven)'; --Short-term national-scale rating affirmed at 'F1(ven)'. Exterior --Long-term foreign and local currency IDRs downgraded to 'B' from 'B+'; Outlook Negative; --Short-term foreign and local currency ratings affirmed at 'B'; --Viability downgraded to 'b' from 'b+' --Support affirmed at 5; --Support Floor affirmed at NF; --Long-term national-scale rating affirmed at 'AA(ven)'; --Short-term national-scale rating affirmed at 'F1+(ven)'. Contact: Theresa Paiz Fredel (Primary Analyst - BBU, Provincial, BOD, Mercantil, Caribe) Senior Director +1-212-908-0534 Fitch Ratings, Inc. One State St. Plaza New York, NY 10004 Mark Narron (Primary Analyst - Exterior) Director +1-212-612-7898 Andres Marquez (Secondary Analyst - Mercantil, Bancaribe) Director +571 326 9999, Ext. 1220 Larisa Arteaga (Secondary Analyst - BOD) Director +1-809-563-2481 Committee Chairperson Rita Goncalvez Senior Director +55 21 4503 2621 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 and Related Research: --'Global Financial Institutions Rating Criteria' (Jan. 31, 2014); --'National Scale Rating Criteria' (Oct. 30, 2013); --'Peer Review: Private Sector Venezuela Banks' (Feb. 6, 2014) --'2014 Outlook: Andean Banks' (Dec. 16, 2013). Applicable Criteria and Related Research: 2014 Outlook. Andean Banks (Colombia, Ecuador, Peru and Venezuela) here Peer Review: Private Sector Venezuelan Banks (Facing Macroeconomic Imbalances) here National Scale Ratings Criteria 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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