Fitch Rates Banco Agromercantil de Guatemala's IDR 'BB'

NEW YORK & SAN SALVADOR, El Salvador--()--Fitch Ratings has assigned an initial 'BB' Long-term foreign currency Issuer Default Rating (IDR) to Banco Agromercantil de Guatemala (BAM). The Rating Outlook is Stable. Fitch has also assigned a Viability Rating (VR) of 'bb'. A full list of BAM's ratings follows at the end of this press release.

KEY RATING DRIVERS

BAM's IDRs and VR reflect its intrinsic strengths, including its improving loan quality and profitability, a significant capital strengthening during last year, and an ample, although short-term funding. BAM's ratings also factor in the operational assistance provided by Bancolombia. BAM's support rating and support rating floor of '5' and 'NF', respectively, indicates that, although possible, sovereign support cannot be relied upon given its limited systematic importance.

BAM's loan portfolio quality indicators have consistently improved in recent years due to the strengthening of monitoring and collection processes. Stricter restructuring and write-off policies have also been implemented. Reserves for impaired loans notable increased, achieving a coverage of 100% of 30-day-past due loans. Fitch expects asset quality to remain stable, despite the rapid loan growth pace.

A capital injection during 2013 notably increased the bank's capital ratios. BAM's capital position is now robust considering the risk embedded in its balance sheet. However, given the faster credit growth over the coming years and continuous dividend payments, Fitch expects capital will gradually decline but will continue to compare favorably with its local and international rating peers.

BAM's ability to obtain funding is good, given the high participation of deposits from individuals; the low concentration of its deposit base, and ample access to institutional funding. Nevertheless, funding is mostly short-term, which results in relevant maturity mismatches. Fitch believes the bank will sustain its good liquidity profile given the adequate amount of liquid assets and historical stability of its deposits.

BAM's operating profitability increased consistently in recent years due to its continuous credit growth, sound and stable net interest margin in relation to its target segments and constant improvements in operating efficiency. Given this improving trend will continue in the coming years, Fitch expects the bank's profitability will converge to the Guatemalan banking system average.

Bancolombia's potential support to BAM cannot be relied upon until BAM becomes its subsidiary, which could happen within five years. Meanwhile, any action of Bancolombia's support needs the approval of BAM's current majority shareholder. However, Fitch recognizes that Bancolombia's minority stake has benefited BAM's risk profile and may boost its business opportunities.

RATING SENSITIVITIES

An increase in Bancolombia's shareholding, which positions it as the majority shareholder would result in an upgrade of BAM's IDRs.

An improvement of BAM's financial performance that would sustain its profitability above Guatemalan banking system average, together with the maintenance of high capitalization measured by a Fitch Core Capital ratio above 11.5%, could also result in an upgrade of BAM's VR.

A breach of the shareholders agreement with Bancolombia accompanied by a weakening of BAM's liquidity profile or a significant reduction of its capitalization could result in a rating downgrade.

A significant deterioration of the loan portfolio quality (which is not mitigated by financial support from its shareholders, either through capital or liquidity injections) that would erode the bank's capital below 13% of regulatory capital ratio could result in a rating downgrade.

KEY ASSUMPTIONS AND SENSITIVITIES

The ratings and Outlook are sensitive to the following assumptions:

--BAM's operating environment will remain stable.

--The bank will maintain its commercial strategy and credit policies.

--Bancolombia will be an increasingly influential voice in the bank's strategy and operations.

PROFILE

BAM is a Guatemalan universal bank mainly focused on the corporate segment (close to 75% of its loan portfolio) with a market share of 8.09% and 8.03% as of December 2013 in terms of assets and deposits, respectively. BAM was established in 1926 but operates under its current name since 2000, as a result of the merger of Banco del Agro and Banco Agricola Mercantil de Guatemala.

Fitch has assigned the following ratings:

--Long-term 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 '5';

--Support Rating Floor 'NF'.

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

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'2014 Outlook: Central America and the Dominican Republic' (Dec. 16, 2013).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

2014 Outlook: Central America and the Dominican Republic

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725825

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=824830

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Contacts

Fitch Ratings
Primary Analyst
Diego Alcazar
Director
+1- 212 908 0396
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Rolando Martinez
Director
+503 2516 6619
Edificio Plaza Cristal, Tercer Nivel
79 Ave. Sur y Calle Cuscatlan
San Salvador, El Salvador
or
Edgar Cartagena
Director
+503 2516 6613
or
Committee Chairperson
Eduardo Santibanez
Senior Director
+562 499 3307
Fitch Chile Clasificadora de Riesgo Ltda.
Alcantara 200, Of. 202
Santiago, Chile
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Diego Alcazar
Director
+1- 212 908 0396
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Rolando Martinez
Director
+503 2516 6619
Edificio Plaza Cristal, Tercer Nivel
79 Ave. Sur y Calle Cuscatlan
San Salvador, El Salvador
or
Edgar Cartagena
Director
+503 2516 6613
or
Committee Chairperson
Eduardo Santibanez
Senior Director
+562 499 3307
Fitch Chile Clasificadora de Riesgo Ltda.
Alcantara 200, Of. 202
Santiago, Chile
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com