Fitch Rates Banco Nacional De Credito C.A.'s VR 'b'; Rates IDR & Affirms National Ratings

NEW YORK--()--Fitch Ratings has assigned a 'b' rating to Banco Nacional de Credito's (BNC) viability rating (VR). In addition, Fitch rates BNC's Issuer Default Ratings (IDR) 'B'. Fitch also affirms BNC's long-term and short-term national ratings at 'BBB(Ven)' and 'F3(Ven)' respectively. A full list of ratings follows at the end of this press release.

KEY RATING DRIVERS

VR, IDRs AND NATIONAL RATINGS

BNC's VR, IDR and national ratings reflect the bank's growing franchise, improved capital ratios, good asset quality, as well as adequate liquidity and funding. The ratings also consider the bank's moderate profitability, rapid credit growth, relatively low loan loss reserves and high exposure to the government. Fitch's view of BNC's creditworthiness is further tempered by the challenges of its operating environment characterized by a fragile economic performance, unorthodox economic policy, deep macroeconomic imbalances and intrusive bank regulation.

Given its focus on corporate customers, conservative policies, low risk products, short turnover of the loan portfolio and rapid loan growth, BNC shows sound asset quality metrics. Loan loss reserves appear to be adequate to cover the current impaired portfolio but should - as asset quality metrics - be seen in the light of high inflation, loan concentration and the fragility of the economic environment. Loan loss reserves to gross loans have decreased to 1.8%; a level below the banks previous average and the median of its peers.

While BNC's profitability (operating ROA above 2% for the past two years) looks adequate, it is below that of key players in the market and is distorted by high inflation and margins that mask the underlying weaknesses of the bank; namely its lower efficiency and limited cross-selling. When adjusted for inflation, the bank shows a loss that would be offset by unrealized exchange rate profits.

Due to constant and growing liquidity in the economy, and the lack of investment alternatives, deposits grow steadily and make up most of the funding at a relatively low cost. However, they are largely demand deposits and very short term. Nevertheless, deposits have been growing and show relative stability in part due to the government's tight monetary/capital controls.

Contributing to the strength of capital ratios are: high nominal profitability, curbs on dividend payouts, the benefits of the unrealized and non-recurring foreign exchange gains (recorded as a reserve on the capital account - 14% of total reported equity), and fresh capital injections. Capital ratios also benefit from the low risk weighting of government securities and compulsory loan portfolios. The bank's equity to assets ratio has improved consistently and is now at par with similarly rated banks. However, capital ratios runs close to local regulatory minimums and remain exposed to the overall performance of the economy and, as such, are not considered a key strength.

Although it is an oil-rich country, Venezuela's economic performance is volatile. This volatility is a result of a mixture of political turmoil, regulatory uncertainty and unorthodox economic management. Severe foreign exchange distortions, rampant inflation, capital controls and weak external balances have also weighed on Venezuela's growth and create a very challenging environment that could worsen rapidly and affect banking operations. This is reflected in the country's sovereign rating (rated 'B' by Fitch with a Negative Outlook)

The Negative Outlook is aligned with that of the Sovereign and reflects Fitch's belief that the bank's direct exposure to the government and the government's high influence on BNC's operations and performance may result, if the sovereign continues to deteriorate, in an even weaker operating environment and weaken the bank's profitability. BNC's government investments portfolio represent 3.6x of its equity.

SUPPORT RATING AND SUPPORT RATING FLOOR

BNC's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF' reflect Fitch's expectation of no support. Given its modest systemic importance, support cannot be relied upon considering Venezuela's speculative-grade rating and lack of a consistent policy on bank support. Government interference in the banking system could also negatively influence shareholder support if these banks were to require financial assistance.

RATING SENSITIVITIES

VR, IDRs AND NATIONAL RATINGS

Should Venezuela's macroeconomic/ political woes deepen, as reflected in its sovereign ratings, BNC ratings could be downgraded. This is the main downside risk for BNC and the rest of Venezuela's banks.

BNC's ratings could be upgraded if the operating environment improves - i.e. the Sovereign rating is upgraded - with a more stable economic background, less intrusive regulation and/or if the bank is able to significantly lower its exposure to the sovereign. The national ratings being an ordinal assessment of the relative strength of local banks, improvements in these ratings would be driven by a sustained improvement of the bank's financial profile especially in terms of efficiency (convergence towards the industry average) and stability of its deposits.

SUPPORT RATING AND SUPPORT RATING FLOOR

Venezuela's propensity or ability to provide timely support to these banks is not likely to change given the sovereign's low speculative-grade ratings. As such, the SR and SRF have no upgrade potential, particularly as the sovereign has a Negative Outlook.

Fitch rates the following:

Banco Nacional de Credito:

--Long-term foreign currency IDR 'B'; Negative Outlook;

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

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

--Viability rating 'b';

--Support rating '5';

--Support floor 'NF';

The following rating is being published in this Rating Action Commentary:

--Long-term local currency IDR 'B'; Negative Outlook;

In addition, Fitch has affirmed BNC's national ratings as follows:

--Long Term National Rating at 'BBB(Ven)';

--Sort Term National Rating at 'F3(Ven)'

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

Applicable Criteria and Related Research:

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

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=829316

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
Senior Director
+1-212-908-0534
Fitch Ratings, Inc.
33 Whitehall St
New York, NY 10004
or
Secondary Analyst
Larisa Arteaga
Director
+809-5632-2481
or
Committee Chairperson
Maria Rita Goncalves
Senior Director
+55 -21 4503 2621
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz
Senior Director
+1-212-908-0534
Fitch Ratings, Inc.
33 Whitehall St
New York, NY 10004
or
Secondary Analyst
Larisa Arteaga
Director
+809-5632-2481
or
Committee Chairperson
Maria Rita Goncalves
Senior Director
+55 -21 4503 2621
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com