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Fitch Publishes Grupo ASSA's IDR of 'BBB-'; Outlook Stable
April 3, 2017 / 5:35 PM / 8 months ago

Fitch Publishes Grupo ASSA's IDR of 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) MONTERREY/SAN SALVADOR, April 03 (Fitch) Fitch Ratings has published Grupo ASSA, S.A.'s (Grupo ASSA) Long-Term Issuer Default Rating (IDR) of 'BBB-'. A full list of rating actions is at the end of this release. KEY RATING DRIVERS IDRS Grupo ASSA's IDRs reflect mainly the credit profile of its main subsidiary, ASSA Tenedora. ASSA Tenedora is the largest contributor to Grupo ASSA's net income and is the largest source of its cash dividends. This subsidiary stands out for its strong and expanding franchise in the Central America region, especially in Panama, where it is the largest insurance company. It also has a good level of profitability, adequate capitalization and liquidity, as well as extensive reinsurance capacity. VR Grupo ASSA's Viability Rating (VR) is highly influenced by the operating environment of its subsidiaries. The entity has insurance or banking operations in all Central American countries, although Panama is its main market. This exposes the entity to low credit-rated countries with different regulatory environments and uneven financial market development constraining its VR. However, Fitch also believes its diversification provides Grupo ASSA with a high capacity to grow, to generate revenues, and strengthen its franchise. Grupo ASSA's capital position is one of its strengths, reflecting the adequate capitalization of its insurance subsidiaries and its nature as a holding company that does not have individual debt. Its double leverage ratio is low and its capital ratios are favored by the quarterly cash dividends received by its investments. Fitch does not anticipate extraordinary capital requirements from any of the main subsidiaries in the foreseeable future, although growing operations may require retaining a higher proportion of their earnings in order to remain self-sustainable. In Fitch's opinion, Grupo ASSA's investment-grade holdings and the low delinquency ratios at the subsidiaries' level reflect a moderate risk appetite. Loan portfolio quality reveals adequate underwriting standards according to local market conditions. Nevertheless, loan loss reserve coverage is low, reflecting the requirements of local regulations and the collateral coverage provided by its main lending segment, residential mortgages. Funding and liquidity is managed at a subsidiary level. Each subsidiary is accountable for obtaining its own resources and comply with local regulations. In this way, the group's liquidity is less fungible than other investment-grade entities. Grupo ASSA's liquidity would come from its subsidiaries' excess reserves coverage because, in Fitch's opinion, investments available for sale would not be the primary source of liquidity. On an individual basis, Grupo ASSA does not have any financial liabilities. Grupo ASSA's franchise in Central America is strong and continues to grow in the insurance sector with the recent acquisition of AIG's operations in Panama, Guatemala, El Salvador and Honduras. Grupo BDF in Nicaragua holds a relevant market position in specific business segments while La Hipotecaria focuses on mortgage lending in El Salvador, Panama and Colombia. Fitch expects that Grupo ASSA will continue to expand its main business lines, leveraging its reputation in the Central American insurance market. Grupo ASSA's profitability is high and consistent. It is favored by strong income generation from both financial intermediation and insurance and commission revenues. The entity has a good degree of revenue diversification by business line and by country, although the majority of revenue comes from its subsidiaries in Panama and Nicaragua (close to 85%). Its good operating efficiency and the sound quality of its subsidiaries' loan portfolios implies low operating expenses and support its good profitability. The ratings incorporate the view that the company's expected dividend flow structure should continue to be driven by its core investments in Empresa General de Inversiones and Grupo Financiero BG, whose consistent dividend payments account for 70% of dividend inflows, as in 2016 (2015: 62%). SUPPORT RATING AND SUPPORT RATING FLOOR Grupo ASSA's SR and SRF of '5' and 'NF', respectively, indicate that, although possible, external support cannot be relied upon, given the entity's limited systemic importance. RATING SENSITIVITIES IDRs Changes in Grupo ASSA's ratings would reflect modifications in its main subsidiary's performance or risk profile. Negative changes in the ratings could come from a reduction of ASSA Tenedora's contribution to consolidated net income to less than one-third of its consolidated income. VR Grupo ASSA's VR is sensitive to its asset and revenue diversification by country. A significant increase in the relative weight of operations located in non-investment-grade countries could affect Fitch's assessment of the consolidated entity's operating environment and put downward pressure on the ratings. Fitch has taken the following rating actions: Grupo ASSA: --Long-Term IDR published at 'BBB-'; Outlook Stable; --Short-Term IDR assigned at 'F3'; --Viability Rating published at 'bbb-'; --Support assigned at '5'; --Support Rating Floor assigned at 'NF'. Contact: Primary Analyst Ricardo Aguilar Associate Director +52 81 8399 9124 Fitch Mexico S.A. de C.V. Prol. Alfonso Reyes No. 2612, Edificio Connexity, Piso 8 Col. Del Paseo Residencial Monterrey, Nuevo Leon 64920 Secondary Analyst Rolando Martinez Senior Director +503 2516 6619 Committee Chairperson Alejandro Garcia Managing Director +1 212-908-9137 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Summary of Financial Statement Adjustments - Impaired Loans were adjusted to reflect only loans that are overdue by 90 days or more in order to be consistent with Fitch's criteria and global industry practices. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021591 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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