Fitch Expects to Rate Banco de Costa Rica's Proposed Bond Issuance 'BB+(EXP)'

NEW YORK--()--Fitch Ratings expects to assign a 'BB+(EXP)' rating to Banco de Costa Rica's (BCR) proposed senior unsecured bond issuance of up to USD 500 million due in 2023. Proceeds are expected to be used for debt repayment and asset liability management improvement. The final rating of the issuance is contingent upon the receipt of final documents and legal opinions conforming to the information already received. A complete list of BCR's ratings follows at the end of this press release.

KEY RATING DRIVERS

BCR's IDR and the expected issuance rating are aligned with Costa Rica's sovereign ratings. The ratings are driven by the sovereign guarantees for all of the bank's liabilities. According to Costa Rica's banking law (Ley Organica del Sistema Bancario Nacional), all state-owned banks have the guarantee and full collaboration of the state.

BCR is one of the strongest banks in Costa Rica. Its solid franchise benefits from sovereign guarantee, consistent performance, and an extensive branch network. BCR is the second largest bank in Costa Rica in terms of assets and deposits, and enjoys a well-diversified loan portfolio. The bank complements its services with four wholly owned subsidiaries in regulated non-credit activities in Costa Rica and a 51% participation in the Panamanian general licence bank Banco Internacional de Costa Rica (BICSA, rated 'BB+' with a Stable Outlook by Fitch), which allows it to extend its business abroad.

BCR's profitability is modest but sufficient to support asset growth and maintain and adequate capital position. ROAA has remained consistently around 1%, below its international peers' average. High operating expenses will continue to limit profitability. Similar to other state-owned institutions, BCR's efficiency indicators compare below its international peers' average.

The bank's risk appetite is moderate, and asset growth remains modest. A restriction placed by the Central Bank in February has limited the asset growth of the Costa Rican financial system. However, BCR maintains its loan portfolio growth close to its historic average, as the limit established by the Central Bank is well above BCR's loan portfolio growth historic average.

Asset quality remains adequate and compares favorably with international peers' average. BCR's growth toward a more balanced portfolio has improved loan portfolio diversification while keeping loan portfolio dollarization, a concern to most Costa Rican banks, at a moderate level.

BCR's deposit base remains as its main funding source. Further diversification has been achieved by local bond and notes issuances, ample credit lines from international banks and a subordinated debt agreement for USD30 million with the Inter-American Investment Corporation. Asset liability management presents some challenges related to tenure mismatches, partly offset by deposit's stability and adequate liquidity coverage. Fitch expects the proposed long-term issuance be used for short-term debt repayment.

RATINGS SENSITIVITIES

Changes in the bank's IDRs and issuance ratings are contingent on sovereign rating actions for Costa Rica (rated 'BB+'; Stable Outlook).

Fitch has assigned the following rating to BCR's proposed USD500 million issuance:

--Long-term senior unsecured bonds 'BB+(EXP)'

Fitch currently rates BCR as follows:

International ratings

--Long-term IDR 'BB+', Outlook Stable;

--Short-term IDR 'B';

--Long-term local currency IDR 'BB+', Outlook Stable;

--Short-term local currency IDR 'B';

--Viability Rating 'bb+';

--Support Rating '3';

--Support Rating Floor 'BB+'.

National ratings:

--Long-term national rating 'AA+(cri)', Outlook Stable;

--Short-term national rating 'F1+(cri)';

--Long-term senior unsecured bonds 'AA+(cri)';

--Commercial paper 'F1+(cri)'.

Additional information is available on 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'National Ratings Criteria' (Jan. 19, 2011).

--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 5, 2012).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

Assessing and Rating Bank Subordinated and Hybrid Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=797960

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz-Fredel
Director Senior
+1-212-908-0534
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analysts
Marcela Galicia
Director
+503-25166616
or
Tertiary Analyst
Rene Medrano
Senior Director
+503-2516-6610
or
Committee Chairperson
Franklin Santarelli
Managing Director
+ 1 212 908-0739
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz-Fredel
Director Senior
+1-212-908-0534
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analysts
Marcela Galicia
Director
+503-25166616
or
Tertiary Analyst
Rene Medrano
Senior Director
+503-2516-6610
or
Committee Chairperson
Franklin Santarelli
Managing Director
+ 1 212 908-0739
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
elizabeth.fogerty@fitchratings.com