Fitch Affirms Banco Provincial Ratings; Outlook to Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has revised the Ratings Outlook on the Venezuela-based Banco Provincial (Provincial) to Stable from Negative. In addition, the following ratings were affirmed as follows:

--Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B+';

--Short-term foreign and local currency rating at 'B';

--Individual at 'D';

--Support at 5.

--Long-term National rating at 'AA(ven)';

--Short-term National rating at 'F-1(ven)';

--Support Floor rating at NF.

The Outlook for the long-term IDR is Stable. Government intervention is a major risk for Venezuelan banks; nevertheless, Provincial's conservative business plan, adequate risk control techniques, long history of expertise, strong profitability, and current capital base provide some room of maneuver in case of further interventions.

Provincial's ratings reflects its adequate performance in a highly unstable operating environment, with good profitability, asset quality and capitalization ratios, based on a strong franchise, conservative risk control techniques and the operational support of Spain's Banco Bilbao Vizcaya Argentaria (BBVA). Provincial's ratings are constrained by the negative effects of government intervention into the bank business and overall private sector activities.

An enhanced loan mix, the bank's low funding cost and appropriate asset and liability management have benefited Provincial's net interest margin, while controlled credit and administrative costs have also boosted its profitability. The return on average assets ratio has increased to 4.8% at end-June 2008, compared to 3% during 2005 - a trend Fitch believes is somewhat sustainable going forward.

Provincial's ample market share, in addition to its conservative credit risk tools have resulted in adequate loan growth and good asset quality ratios, above market trends. At end June 2008, the past due loan portfolio was 1% of total loans, but slightly increasing. Loan loss reserves have averaged 2.4% since 2005, a level that might be hard to maintain considering the volatility of the operating environment.

Higher profitability and a more conservative asset expansion have aided Provincial's capital ratios, as the equity to assets ratio improved to 11.7% at end-June 2008 from 8.5% at end-2006. Nevertheless, around 12% of Provincial's equity is represented by short-term non-deferral preferred shares which do not provide any cushion for unexpected losses according to Fitch Hybrid Criteria; as such the adjusted equity to assets ratio stands at 10.3%, still adequate.

Provincial was the fourth largest universal bank in Venezuela at June 2008 in terms of invested funds (assets plus investment funds) with an 8.5% asset market share. Provincial is 55% owned by Spain's BBVA, with Grupo Polar, a major Venezuelan industrial, being the second largest shareholder with a 26% stake.

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