Costa Rica News – Fitch Ratings has affirmed Banco de Costa Rica’s (BCR) Long-Term Issuer Default Rating (IDR) at ‘BB+’. Fitch also affirms BCR’s Viability Rating (VR) at ‘bb+’. The Rating Outlook is Negative. A full list of ratings follows at the end of this press release.
The bank’s IDRs, senior debt ratings, and National ratings are driven by the potential support of the Costa Rican government (‘BB+’/Outlook Negative), as stated in the National Banking System Law. According to this law, all state-owned banks have the guarantee and full collaboration of the state. The explicit guarantee allows BCR’s Long-Term IDR, senior debt ratings and Outlooks to be aligned with the sovereign rating.
KEY RATING DRIVERS – VR
The operating environment limits BCR’s VR given the big influence it exerts on its performance. Fitch considers the bank’s VR to be highly sensitive to the Costa Rican economic environment and sovereign rating.
Fitch also considers the bank’s strong franchise, ample and diversified deposits, consistent asset quality and improving profitability. The VR also factors the bank’s moderate capitalization.
BCR is the second-largest bank in Costa Rica and is characterized by its mainly corporate focus and market power. The bank’s ability to attract deposits benefits from the sovereign’s explicit guarantee for the bank’s senior liabilities as well as its high market share (19.8% in terms of total assets and 22.5% in term of customer deposits as of September 2016) and extensive branch network.
The bank’s loan portfolio is highly diversified by economic sector and by debtor. Its exposure to U.S. dollar-denominated loans has increased during 2016 to up to around 55% of gross loans. Non-performing loans continued above the industry’s average (1.9% versus 1.7% of gross loans, respectively, as of September 2016). However, this reflects its low level of write-offs (0.18% of gross loans).
Consistent with BCR’s state-owned nature, profitability is modest and below the Costa Rican banking system average. Nevertheless, BCR’s profitability has improved due to better operating efficiency. The bank has made great efforts to reduce and control its operating expenses; therefore, it is expected that these actions will continue to give positive results in 2017.
BCR’s loss absorption capacity has recovered during 2016. Its higher profitability and slow credit growth pace has benefited its capacity to increase loan impairment charges in a stress scenario. However, Fitch expects that credit growth will accelerate in the following years and could reach a higher level than its internal capital generation, but still maintain its Fitch Core Capital ratio above 12%.
KEY RATING DRIVERS – SUPPORT RATING, SUPPORT RATING FLOOR
BCR’s Support Rating (SR) of ‘3’ reflects Fitch’s opinion that there is a moderate probability of support from the state. In addition, the bank has a clear policy role and the explicit support of the state. Support probability is limited by the sovereign rating. The bank’s Support Rating Floor (SRF) is equalized to the sovereign rating, given the explicit guarantee from the government toward the bank, and its systemic importance.
RATING SENSITIVITIES – IDRs, VR, NATIONAL RATINGS, SR, SRF AND SENIOR DEBT
Changes in Costa Rica’s sovereign rating may trigger similar changes in BCR’s IDRs, VR, SR, SRF, and senior debt ratings.
Alternatively, a material weakening of the bank’s fundamentals could result in a downgrade of its VR, although this is not Fitch’s baseline scenario.
National ratings are less likely to be affected should Costa Rica’s IDRs be downgraded as it would not alter relativities with local peers, and therefore have a Stable Outlook.
Fitch has affirmed BCR’s ratings as follows:
–Long-Term Foreign Currency IDR at ‘BB+’; Outlook Negative;
–Short-Term Foreign Currency IDR at ‘B’;
–Long-Term Local Currency IDR at ‘BB+’; Outlook Negative;
–Short-Term Local Currency IDR at ‘B’;
–Long-term senior unsecured bonds at ‘BB+’;
–Viability Rating at ‘bb+’;
–Support Rating at ‘3’;
–Support Rating Floor at ‘BB+’;
–Long-term National Rating at ‘AA+(cri)’; Outlook Stable;
–Short-term National Rating at ‘F1+(cri)’;
–Programa de Emisiones de Bonos Estandarizados del Banco de Costa Rica 2012 at ‘AA+(cri)’;
–Programa de Emisiones de Papel Comercial del Banco de Costa Rica 2012 at ‘F1+(cri)’.
Also, Fitch has assigned the following national ratings:
–Programa de Emisiones de Bonos Estandarizados Dólares-BCR 2016 at ‘AA+(cri)’;
–Programa de Emisiones de Bonos Estandarizados Colones-BCR 2016 at ‘AA+(cri)’;
–Programa de Emisiones de Papel Comercial Dólares-BCR 2016 at ‘F1+(cri)’;
–Programa de Emisiones de Papel Comercial Colones-BCR 2016 at ‘F1+(cri)’.
Data Adjustments: Fitch has made adjustments to the bank’s Risk Weighted Assets (RWAs) following its criteria, and consolidated the bank’s individual RWAs with those of its main subsidiary in order to calculate the Fitch Core Capital ratio and the operating profit-to-RWA ratio.
Additional information is available on www.fitchratings.com
From Business Wire