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Fitch Downgrades Salvadorian Banks after Sovereign Downgrade; Outlook Revised to Negative
February 10, 2017 / 7:22 PM / 10 months ago

Fitch Downgrades Salvadorian Banks after Sovereign Downgrade; Outlook Revised to Negative

(The following statement was released by the rating agency) MONTERREY/SAN SALVADOR, February 10 (Fitch) Fitch Ratings has today downgraded the Long-Term Issuer Default Ratings of Banco Agricola, S. A. (Agricola) and Banco Davivienda Salvadoreno, S.A. (Davivienda Sal) to 'BB-' from 'BB'. The Rating Outlooks are revised to Negative from Stable. Fitch has also downgraded Agricola's Viability Rating (VR) to 'b' from 'bb-', and Davivienda Sal's VR to 'b' from 'b+'. The banks' Short-Term IDRs were affirmed and the National ratings are unaffected. A full list of rating actions is at the end of this rating action commentary Fitch's rating actions and Outlook revisions follow the recent downgrade of El Salvador's sovereign rating to 'B' from 'B+', its Sovereign Rating Outlook revision to Negative from Stable, as well as the country ceiling downgrade to 'BB-' from 'BB'. The downgrade reflects El Salvador's harsh political environment that has imposed additional limits to the government's financing options as well its ability to take further measures to restore public finances, while the Negative Outlook reflects the persisting risks to meeting financing needs for 2017 in the absence of a political agreements. (See "Fitch Downgrades El Salvador's IDR to 'B'; Outlook Revised to Negative", dated Feb. 1, 2017, at ''.) The National scale ratings of these banks and the ones related to their respective local holding companies in El Salvador (Inversiones Financieras Banco Agricola, S.A. and Inversiones Financieras Davivienda, S.A.) remain unaffected, as national ratings are local relative rankings of creditworthiness within a particular jurisdiction, and the relative strengths and weaknesses remain unchanged. KEY RATING DRIVERS IDRS AND SUPPORT RATINGS (SRs) The IDRs of Agricola and Davivienda Sal are driven by the support of their respective parents, both rated above the El Salvador sovereign (Bancolombia and Banco Davivienda (Davivienda) at 'BBB'/Outlook Negative). The IDRs of Agricola and Davivienda Sal have been downgraded to 'BB-' as they are constrained by El Salvador's country ceiling of 'BB-'. The rating downgrades do not imply any changes in Fitch's assessment of their respective parent's capacity or propensity to provide support to their subsidiaries, should it be required. The SRs of both banks are affirmed at '3' given that Fitch's assessment of the probability of support to these banks by the respective shareholders is moderate. The agency's opinion is based on the relative importance of the operations in Central America to their respective parents, and on the significant reputational risk that default would pose to their respective parents. VR Agricola's and Davivienda Sal's VRs have been downgraded to reflect the high influence of the operating environment in the banks' performance and prospects and its high exposure to El Salvador's debt. While Agricola's VR was above the sovereign, the current rating action reflects that both Agricola and Davivienda's VRs are intrinsically linked to a worsened economic situation in El Salvador. As per Fitch's criteria, banks are rarely rated above the sovereign and, in the agency's opinion, the deteriorated Salvadorian operating environment constrains these banks' ratings to the sovereign's creditworthiness. Agricola's VR is also moderately influenced by its sound financial performance, asset quality above local peers and still-good capital base. The institution maintains a leadership position in the Salvadorian market and a stable and granular deposit base, which is the core of its funding structure. Davivienda's VR is moderately influenced by its modest profitability, aligned with industry average, sound but decreasing capital position, and adequate asset quality. Davivienda's funding profile is robust, also underpinned by a large and granular deposit base. AGRICOLA SENIOR TRUST The LT-IDR of Agricola Senior Trust's (AST) loan participation notes was downgraded to 'BB-' to 'BB'. The rating of the notes is at the same level of Agricola's Long-Term IDR, reflecting that the notes are AST's senior obligations, secured by the trust's sole asset, a 100% participation in a senior unsecured loan from Bank of America N.A. to Agricola. RATING SENSITIVITIES IDRs and VRs Agricola's and Davivienda Sal's IDRs are sensitive to a change in the El Salvador Sovereign Rating and Country Ceiling. The Negative Outlook implies that any negative rating action on the sovereign would also lead to a similar action on Davivienda, Agricola and Agricola Senior Trust's IDRs and in both banks' VRs. SUPPORT RATING The SR is potentially sensitive to any change in assumptions around the propensity or ability of Bancolombia and Banco Davivienda to provide timely support to their respective subsidiaries. This scenario is unlikely given the relative strength of both banks relative to the El Salvador Sovereign rating. The rating actions are as follows: Banco Agricola, S.A. --Long-Term IDR downgraded to 'BB-' from 'BB'; Outlook revised to Negative from Stable; --Short-Term IDR affirmed at 'B'; --Viability Rating downgraded to 'b' from 'bb-'; --Support Rating affirmed at '3'. Agricola Senior Trust --Loan participation notes downgraded to BB- from BB. Davivienda Salvadoreno, S.A. --Long-Term IDR downgraded to 'BB-' from 'BB'; Outlook to Negative from Stable; --Short-Term IDR affirmed at 'B'; --Viability Rating downgraded to 'b' from 'b+'; --Support Rating affirmed at '3'. 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 Analysts (Davivienda Sal) Rolando Martinez Director +503 2516 6616 Marcela Galicia (Agricola) 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: Additional information is available on Applicable Criteria Future Flow Securitization Rating Criteria (pub. 14 Sep 2016) here Global Bank Rating Criteria (pub. 25 Nov 2016) here Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1018867 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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