April 7, 2017 / 8:09 PM / 9 months ago

Fitch Affirms Banco Agricola's IDR at 'BB-' Following Annual Review; Outlook Negative

(The following statement was released by the rating agency) MONTERREY, April 07 (Fitch) Fitch Ratings has affirmed Banco Agricola's (Agricola) Long-Term Issuer Default Rating (IDR) at 'BB-', Support Rating (SR) at '3' and Viability Rating (VR) at 'b', following an annual review. The Rating Outlook on Agricola's long-term IDR remains Negative. A full list of rating actions follows at the end of this press release. KEY RATING DRIVERS IDRS, NATIONAL RATINGS AND SENIOR DEBT Agricola's IDR of 'BB-' is above the El Salvador's sovereign rating, based on potential support from its parent Bancolombia, S.A. (Bancolombia; Long-Term IDR 'BBB'/Outlook Negative). However, Agricola's IDR is constrained by El Salvador's Country Ceiling. As per Fitch's criteria, the Country Ceiling captures transfer and convertibility risks and limits the extent to which support from foreign shareholders can be factored into the banks' Long-Term Foreign Currency (FC) IDRs. In Fitch's opinion, Bancolombia's capacity and propensity to support Agricola considers that any required support would be manageable relative to the ability of the parent to provide it, and the high reputational risks for the parent in the event of subsidiary default. Fitch's view factors in the low cost of potential support, as Agricola accounts for 6% of group's asset. In Fitch's view, a sale of this operation is very hard to conceive given Agricola's leadership position in El Salvador and high management integration. VIABILITY RATING (VR) Agricola's significant exposure to the financial health of the government, the wider domestic economy and local financial markets gives the operating environment a high influence on the bank's performance and prospects. Further deterioration in El Salvador's operating environment may impact the bank's asset quality, as it deteriorates household and corporate payment capacity, and its funding and liquidity profile. Agricola's VR also considers its adequate asset quality, good capital position, stable deposits structure and consistently high profitability. Agricola's loan quality metrics stand out in the Salvadorian Banking system. Reserves coverage is ample and non-performing loans are low compared to peers, buttressed by consistent underwriting standards and sound credit risk controls. Low credit costs compared to market averages are also a key element of the bank's profitability. In Fitch's view, the consistency of Agricola's risk management may help keep asset quality and credit costs at manageable levels, despite the challenging environment. Agricola's profitability is consistently above market average, despite the increase in credit costs seen over the past two years. The bank's low operation and credit costs compensate for a decreasing margin and limited income diversification due to local restrictions on service fees and commissions. In Fitch's view, sound profitability allows for important dividends payments to its shareholder. In Fitch's opinion, Agricola's capital position is sound and consistent with its rating level and the relative high risk of the operating environment. While adequate buffers over the regulatory minimum are still present, the Fitch Core Capital ratio and the regulatory ratio have decreased consistently due to high dividend pay-out ratio. Banco Agricola has built a solid funding profile based on a stable and relatively low cost deposits base. Agricola's costumer deposits account for 17% of the banking system deposits. Liquidity risk is adequately managed. Most of Agricola's liquid assets are cash, mandatory liquidity reserves and deposits foreign financial institutions, mostly rated 'BBB-' or above. Total investments account for 20% of total liquid assets, highly concentrated in sovereign debt. SUPPORT RATING (SR) Agricola's SR of '3' reflects Fitch's assessment of the probability of support by its shareholders as moderate. The agency's opinion is based on the relative size of the operations in Central America, and on the significant reputational risk that default would pose Bancolombia. AGRICOLA SENIOR TRUST'S LOAN PARTICIPATION NOTES The loan under the Senior Unsecured Loan Agreement ranks pari passu in right of payment to all of Agricola's existing and future senior indebtedness, and is effectively subordinated to all of our secured indebtedness with respect to the value of the assets securing such indebtedness and to all of the existing and future liabilities of its subsidiaries. It has thus been affirmed due to the affirmation of Agricola's IDR. HOLDING COMPANY INVERSIONES FINANCIERAS BANCO AGRICOLA The holding company national ratings are aligned those of its main subsidiary, Banco Agricola, as the bank accounts for 99% of total assets and earnings. RATING SENSITIVITIES IDRS, VR, NATIONAL RATINGS AND SENIOR DEBT Agricola's IDR is capped at El Salvador's Country Ceiling of 'BB-'. The Negative Rating Outlook implies that a downgrade in El Salvador's country ceiling will trigger a similar change in the bank's IDR. In turn, Agricola's VR is highly influenced by the operating environment and rated at the sovereign level. A downgrade in El Salvador's sovereign rating may trigger a similar change in the bank's VR. Changes in Agricola's and Inversiones Financieras Banco Agricola, S.A.'s national ratings, which are relative rankings of creditworthiness within a particular jurisdiction, have limited downside potential as Agricola's IDR is above the sovereign. SUPPORT RATINGS The support rating is sensitive to a change in Bancolombia's ability or propensity to provide support to their subsidiaries. AGRICOLA SENIOR TRUST'S LOAN PARTICIPATION NOTES The rating of Agricola Senior Trust's notes is in line with Agricola's IDR and is therefore sensitive to any changes in the latter. Fitch has affirmed the following ratings: Banco Agricola, S.A. --Long-Term IDR at 'BB-'; Outlook Negative; --Short-Term IDR at 'B'; --Viability Rating at 'b'; --Support Rating at '3'. --Long-term National Rating at 'AAA(slv)'; Outlook Stable; --Short-term National Rating at 'F1+(slv)'; --Senior unsecured debt long-term rating at 'AAA(slv)'; --Senior secured debt long-term Rating at 'AAA(slv)'. Agricola Senior Trust --Loan participation notes at 'BB-'. Inversiones Financieras Banco Agricola, S.A. --Long-term National Rating at 'AAA(slv)'; Outlook Stable; --Short-term National Rating at 'F1+(slv)'. Contact: Primary Analyst Monica Ibarra Director +52 (81) 8399-9150 Fitch Mexico, S.A. de C.V. Prol. Alfonso Reyes 2612 Monterrey, N.L. Mexico Secondary Analyst Marcela Galicia Director +503 2516 6619 Committee Chairperson Claudio Gallina Senior Director +55 11 4504-2216 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Summary of Financial Statement Adjustments - Pre-paid expenses were re-classified as intangibles and deducted from Fitch Core Capital. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021924 Solicitation Status here 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. 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