NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an initial 'BB+' long-term foreign currency Issuer Default Rating (IDR) to Banco Popular y de Desarrollo Comunal (BPDC) in Costa Rica. The Rating Outlook is Stable. Fitch has also assigned a Viability Rating (VR) of 'bb+'. A full list of rating actions follows at the end of this press release.
KEY RATING DRIVERS - IDRs, VR, SF, and SRF
BPDC's IDR and VR reflect its sound capital cushion, high profitability ratios, stable deposit base and adequate asset quality. The bank's ratings also reflect the moderate tenure mismatches in its asset and liability structure.
The bank's Support Rating (SR) of '3' and Support Floor (SF) of 'BB' indicates that in Fitch's view there is a moderate probability of support from the Costa Rican Government despite having no explicit guarantee, given the nature of the bank and its systemic importance. The bank's systemic importance comes from its relevant market share in terms of assets (12.7%) and deposits (11.9%) along with its duties of public interest.
The main strength of the bank is its robust capital, outperforming most of its similarly rated peers both domestic and international. BPDC's capital is fuelled by the mandatory employer contributions, equivalent to 0.25% of the total payroll of the country. As of September 2013, BPDC's Fitch Capital Ratio was 27.1%, close to the 4 year average, above the rating category median of 16.8%. In Fitch's opinion the bank will continue having robust capital ratios, with enough room to support asset growth and unexpected losses.
BPDC's profitability ratios remain high, outperforming the local industry average. The bank's good financial performance lies in the loan portfolio's high returns given the sizable component of consumer lending and a reasonable credit cost level in light of its retail orientation.
BPDC's funding is stable and includes recurrent influx of funds from the State. The funding stability benefits from the government's monthly deposit of nearly 41% of the public sector payroll. Additionally, the bank collects the mandatory contributions to the complementary pension fund equivalent to 1.25% of the total payroll of public and private sector employees.
The bank has maintained a reasonable level of impaired loans despite its orientation to consumer lending, a segment with natural deterioration propensity in Costa Rica. As of September 2013, past due 90 days loans represented 2.8% of the total portfolio, close to the last four year average (2.7%). Additional elements that also prove the adequate credit quality are the low write-offs and restructured loans.
Asset and liability management is challenged by a funding structure concentrated in the short term, causing moderate tenure mismatches in the period tranches less than a year. Liquidity risk is mitigated by the above-mentioned funding stability and the sufficient liquidity cushion.
Potential upgrades of the bank's VR -and consequently of the IDRs- are limited over the medium term as the bank is currently rated at the same level of the sovereign, which has a stable outlook. In the long term, however, upside potential could arise from a substantial improvement in funding and business diversification, coupled with a higher sovereign rating.
A significant deterioration of the bank's profitability and asset quality, which erode the capital and reserves cushion, would place downward pressure on the bank's VR and IDRs.
BPDC's current SR and SRF indicate that in the event of individual risk profile deterioration, the IDR would not fall below 'BB', given the agency's opinion that government support will be forthcoming. Changes on sovereign creditworthiness and/or propensity of support would affect the SR and SRF.
BPDC was established in 1969 as part of the Alliance for Progress program sponsored by the John F. Kennedy U.S. government. The focus of the program was to provide social, economic and technical support to Latin America in the 60's. The bank is owned by the Costa Rican workforce. BPDC is the third largest bank in terms of assets in Costa Rica; as of September 2013, its market share was 12.7% and the largest in terms of net revenue (21.3%).
Fitch has assigned the following ratings:
--Long Term Issuer Default Rating (IDR) 'BB+'; Outlook Stable;
--Short Term IDR 'B';
--Local Currency Long Term IDR 'BB+'; Outlook Stable;
--Local Currency Short Term IDR 'B';
--Viability Rating: 'bb+';
--Support Rating: '3';
--Support floor: 'BB';
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria