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Fitch Affirms Multibank at 'BBB-'; Outlook Stable
May 18, 2017 / 8:52 PM / 6 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: Additional information is available on 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. 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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