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Fitch Affirms Banco Industrial's IDR at 'BB' Following Peer Review; Outlook Stable
May 9, 2017 / 10:19 PM / 7 months ago

Fitch Affirms Banco Industrial's IDR at 'BB' Following Peer Review; Outlook Stable

(The following statement was released by the rating agency) MONTERREY, May 09 (Fitch) Fitch Ratings has affirmed Banco Industrial, S.A.'s (Industrial) Long-Term Issuer Default Rating (IDR) at 'BB', Short-Term IDR at 'B' and Viability Rating (VR) at 'bb', following a peer review of Guatemala's largest banks. The Rating Outlook is Stable. Similar rating actions were taken on the national ratings of Industrial's subsidiaries. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS IDRs, NATIONAL RATINGS AND SENIOR DEBT Industrial's VR, IDR and National Ratings balance the bank's leading market position in Guatemala with its pressured capital levels. Industrial's VR also reflects its sound asset quality and strong profitability. Despite growing competition, Industrial maintains pricing power in the corporate lending segment. The bank's strong franchise enables it to sustain an ample and diversified deposit base and to complement this base with local and internationally sourced wholesale funding. As of December 2016, Industrial held the top rank in market share for loans and deposits within Guatemala, with market shares of 27.9% of total assets and 24.3% of total deposits. Industrial maintains ample geographic coverage through its extensive retail branch network and other commercial channels. Industrial's Fitch Core Capital ratio remains stable around 9.5%, below similarly rated international peers. In order to sustain expected growth without further capital pressures, the bank is reducing its dividend payout ratio and calling fresh capital increases in 2017. Industrial's loss absorption capacity also benefits from additional buffers against unexpected losses in the form of loan loss reserves coverage above 100%, as well as GTQ1.4 billion in subordinated debt and hybrid securities. As Guatemala's largest bank, with exposure to all major economic actors, Industrial's ratings are sensitive to changes in the operating environment. Systemic events such as regulatory changes or political uncertainty can affect the bank's performance and prospects. For 2016, lower economic growth and specific regulation on credit cards limited growth and profitability. Industrial's conservative investment portfolio and controlled delinquency ratios sustain its controlled credit costs, outperforming those of domestic and international peers. Non-performing loans greater than 90 days have averaged 0.6% of gross loans over the past five years. However, Industrial's corporate orientation results in elevated loan concentration. Industrial's top 20 borrowers represented nearly two times its Fitch Core Capital. Industrial's stable margins and controlled operating and credit costs sustain a long track record of strong profits. In 2016, operating profitability was pressured by lower loan growth and tighter net interest margins. Loan impairment charges also registered a moderate increase, but these are still lower than local peers because of sound asset quality. In the agency's opinion, the bank's strategy to gradually move to higher-yielding segments may have a moderate positive impact in profitability over the medium term. SUPPORT RATING AND SUPPORT RATING FLOOR Despite Industrial's systemic importance, Fitch assigns only a moderate probability of support from the Guatemalan government, should it be required (reflected in a Support Rating of '3' and a Support Rating Floor of 'BB-', one notch below the sovereign rating). Fitch's expectation of support is affected by the state's limited financial flexibility and the banking system's significant foreign currency obligations. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES INDUSTRIAL'S SUBORDINATED TIER 1 CAPITAL NOTES, SUBORDINATED AND SENIOR TRUSTS KEY RATING DRIVERS: Industrial's subordinated Tier I capital notes (IST-I) are rated four notches below the bank's Long-Term IDR given its deep subordination status and discretionary coupon omission. Fitch has assigned a recovery rating of 'RR6' to reflect its expectation for poor recovery prospects in the event of default. Industrial Subordinated Trust's Notes (ISbT) are rated one notch below Industrial's Long-Term IDR reflecting the subordinated status, ranking junior to all Industrial's present and future senior indebtedness, pari passu with all other unsecured subordinated debt and senior to Industrial's capital and tier I hybrid securities. Industrial Senior Trust's Notes' (ISnT) ratings are in line with Industrial's Long-Term IDR, reflecting that the senior unsecured obligations rank equally to Industrial's unsecured and unsubordinated obligations. SUBSIDIARY AND AFFILIATED COMPANY The national ratings of Industrial's subsidiaries: Contecnica S.A. (Contecnica), Financiera Industrial S.A. (Financiera Industrial) and Westrust Bank (International) Limited (Westrust Bank), are equalized with those of Industrial. Fitch views these entities as key and integral parts of Industrial's business given their high degree of integration with the group, complementary activities and enhancement of Industrial's business model. The national ratings in Panama of BI Bank S.A.(BIBank) reflect the potential support from its sister company, Industrial through their holding company Bicapital Corporation would be forthcoming, given the strong synergies with parent, providing products/services in markets identified as strategically important and the high integration with the group. RATING SENSITIVITIES IDRs, NATIONAL RATINGS AND SENIOR DEBT A Fitch core capital ratio below 9% could negatively affect ratings, as would a sustained deterioration in the bank's asset quality and financial performance. However, Industrial's VR and IDR have limited upside potential given the constraining operating environment (sovereign rating of 'BB'/Stable Outlook) and the tight capital levels. SUPPORT RATING AND SUPPORT RATING FLOOR Industrial's Support and Support Rating Floor ratings would be affected by a change in Guatemala's ability or willingness to support the bank. INDUSTRIAL'S SUBORDINATED TIER 1 CAPITAL NOTES, SUBORDINATED AND SENIOR TRUSTS' RATING SENSITIVITIES Changes in the ratings of IST-I, ISnT and ISbT's are contingent on changes in Industrial's long-term IDR. SUBSIDIARY AND AFFILIATED COMPANY Changes in the ratings of Contecnica, Financiera Industrial, Westrust Bank, and BIBank are contingent on changes in Industrial's capacity and propensity to provide support. Fitch has affirmed the following: Banco Industrial S.A.: --Long-Term Foreign Currency IDR at 'BB'; Outlook Stable; --Short-Term Foreign Currency IDR at 'B'; --Long-Term Local Currency IDR at 'BB'; Outlook Stable; --Short-Term Local Currency IDR at 'B'; --Viability Rating at 'bb'; --Support at '3'; --Subordinated Tier I Capital Notes debt at 'B-'/ 'RR6'; --Support Rating Floor at 'BB-'; --National scale long-term rating at 'AA(gtm)'; Outlook Stable; --National scale short-term rating at 'F1+(gtm)'. Industrial Subordinated Trust: --Industrial Subordinated Trust Tier II debt at 'BB-'. Industrial Senior Trust: --Long-term senior unsecured debt at 'BB'. Contecnica S.A.: --National scale long-term rating at 'AA(gtm)'; Outlook Stable; --National scale short-term rating at 'F1+(gtm)'. Financiera Industrial S.A.: --National scale long-term rating at 'AA(gtm); Outlook Stable; --National scale short-term rating at 'F1+(gtm)'. Westrust Bank (International) Limited: --National scale long-term rating at 'AA(gtm)'; Outlook Stable; --National scale short-term rating at 'F1+(gtm)'. BI Bank, S.A. --National scale long-term rating at 'A(pan)', Outlook Stable; --National scale short-term rating at 'F1(pan)'. Contact: Primary Analyst (Industrial) Alejandro Tapia Director Fitch Mexico, S.A. de C.V. Prol. Alfonso Reyes 2612, Monterrey, N.L. Mexico Secondary Analyst Marcela Galicia Director +503 2516-6616 Primary Analyst (Westrust Bank, Financiera Industrial, Contecnica) Francesco Dell'Arciprete Analyst +503 25 16 6600 79 Ave. Sur y Calle Cuscatlan Edificio Plaza Cristal, Tercer Nivel San Salvador, El Salvador Secondary Analyst Marcela Galicia Director +503 2516-6616 Primary Analyst (BI Bank) Marcela Galicia Director +503 2516-6616 Secondary Analyst Francesco Dell'Arciprete Analyst +503 25 16 6600 Committee Chairperson Theresa Paiz Fredel Senior Director +1-212-908-0534 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Summary of Financial Statement Adjustments - Net Deferred Charges have been classified by Fitch as intangibles and deducted from Fitch Core Capital. Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here National Scale Ratings Criteria (pub. 07 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. 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. 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