NEW YORK--()--Fitch Ratings has affirmed Venezuela-based Banesco Banco Universal's (BBU) Issuer Default Rating (IDR) at 'B' with a Stable Outlook. BBU's long-term National Rating (LTNR) was upgraded to 'A+(ven)' from 'A(ven)'. A full list of BBU's ratings follows at the end of this press release.
RATING ACTION RATIONALE
BBU's IDR is driven by its financial strength reflected in its Viability Rating (VR). The bank's IDRs are one notch below the sovereign's ratings (foreign and local currency IDRs 'B+'; Outlook Negative).
Fitch affirmed BBU's VR and IDR ratings due to the bank's strong overall financial performance in spite of the government's high level of intervention in the banking business. In Fitch's opinion, BBU's steady loan growth strategy combined with its reduced funding cost structure has resulted in historically high profitability ratios, despite Venezuela's inherent operational volatility.
Fitch believes that the shareholders' willingness to provide support should it be required is possible, though it cannot be relied upon due to the government's interference with the banking system, underpinning BBU's Support rating of '5'. Despite BBU's systemic importance, its support rating of 'No Floor' (NF) reflects Venezuela's speculative grade rating, and the government's limited willingness and capacity to provide support.
Fitch upgraded BBU's LTNR to 'A+(ven)' from 'A(ven)', based on the bank's comparably stronger financial performance relative to the local market average. Sound credit growth and adequate financial margin management has propelled BBU's ROAA ratios to peak levels. Although profitability is expected to decline somewhat in 2013, it will continue to compare favorably to local peers (large private sector universal banks).
SENSITIVITIES/RATING DRIVERS - IDRS, VR, AND NATIONAL RATINGS
BBU's ratings reflect its improved performance in a challenging environment, good asset quality, comparably higher profitability (even when accounting for inflation) and low liquidity risk relative to other similarly rated peers. The bank's ratings are constrained by capitalization ratio pressures and the negative effects of government intervention over the banking business and overall private sector activities.
The Rating Outlook for the long-term IDRs is Stable. Positive rating actions will be limited as the Sovereign's IDRs currently have a Negative Outlook. Although this is not Fitch's base case scenario, a significant deterioration in the bank's asset quality, which hinders its equity loss absorption capacity and pressures the bank's Fitch core capital ratio to a level below 10% could pressure the bank's ratings downward.
In the event of a sovereign ratings downgrade, BBU's national ratings are not expected to be negatively affected. In Fitch's opinion, BBU's credit risk profile will remain strong relative to its local peers.
SENSITIVITIES/RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
There is limited upside to the bank's support rating and support rating floor over the medium term given the sovereign's current ratings and Outlooks and the government's propensity to intervene in the banking business and overall private sector activities.
BBU is the result of several mergers and is the largest private bank in Venezuela, with 12.69% market share in terms of assets at Sept. 30, 2012. It has been the leader in many segments, especially in the consumer and middle-loan markets.
Fitch has affirmed the following ratings for BBU:
--Long-term foreign and local currency IDRs at 'B'; Outlook Stable;
--Short-term foreign and local currency ratings at 'B';
--Viability rating at 'b';
--Support at '5';
--Support floor 'NF';
--Short-term national-scale rating at 'F1(ven)';
Fitch has upgraded the following rating for BBU:
--Long-term national-scale rating to 'A+(ven)' from 'A(ven)'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'Outlook 2013: Andean Banks' (Dec. 14, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
2013 Outlook: Andean Banks